X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Easy credit terms and a bad economy may be to blame for what are historic highs in personal bankruptcy filings. According to the Administrative Office of the U.S. Courts, a record 1,661,996 bankruptcies were filed in fiscal year 2003, which ended on Sept. 30, an increase of 7.4% from a year ago. Overwhelmingly, those figures represent the travails of individual debtors as commercial bankruptcies accounted for just 2.2% of the new cases. The filing pace for personal bankruptcies is now roughly double what it was 10 years ago. During this time no new bankruptcy judges have been added to the federal bench, creating a work crunch. “The workload is much heavier,” said U.S. Bankruptcy Judge Eugene R. Wedoff, who sits in Chicago, “and that’s true for judges across the country. It’s certainly true for judges in the Northern District of Illinois.” Wedoff said that the extension of consumer credit to people who lack the income to meet their obligations may be to blame for the decade-long increase. The courts’ statistics appear to support that idea. Nearly 71% of last year’s filings were Chapter 7 petitions by debtors seeking to wipe out substantially all of their debts. More than 1.17 million of those cases were filed in 2003, up 8.6% from 2002. Matthew Mason, president of the 1,300-member National Association of Consumer Bankruptcy Attorneys, offered another theory. “Right now, what we’re seeing is the flat-out effects of the economy being bad,” he said. Mason described what he called a typical debtor cycle where home-equity loans are taken out to pay off credit card bills. The borrowers then default on the equity loans because they lack the resources to pay off second and third mortgages, forcing them into bankruptcy. “Layoffs, cutbacks, divorce, accidents, medical bills, all affect people who are right at the edge of their financial resources where it takes just one thing to go wrong and they’re in default,” he said. ‘Unlikely to be a downturn’ While recent government reports assert that the economy is improving, Mason said that “bankruptcy lags the economy” and that there is unlikely to be a downturn in filings until the economy has been strong for a while. He attributes this phenomenon to collection attorneys who press hard to collect debts when debtors are working, as opposed to when they are unemployed. “When people go back to work, there’s something to collect against,” he said. “My firm is filing at an astonishing rate-40 to 80 cases a month,” said bankruptcy lawyer Jeffrey L. Solomon of Garden City, N.Y.’s Steinberg, Fineo, Berger & Barone said. “It’s staggering.” Solomon said that a majority of his cases concern “middle-income families that are in over their heads.” But he also counts among his clients single-income households and dual-income households where one partner has lost his or her job. Echoing Mason, Solomon said that these debtors often take high-interest cash advances to pay their bills and then cannot repay the advances themselves. “They get sucked into a debt structure that they could not get out of even if they were earning at full capacity,” he said. Solomon, too, blames the filing surge on a decline in standards for issuance of new credit cards. Those standards, he said, have decayed “from an analysis of the borrower’s means to credit card arbitrage. Banks actually like it when people pay late,” he said, because it enables them to charge 18% to 25% interest on people who are just making the minimum payments. In contrast to the rising personal filings, business bankruptcies have declined in the past year, the Administrative Office of the U.S. Courts said. Just 36,183 commercial bankruptcies were filed in 2003, a 7.4% drop from 2002′s figure. A bill that would have toughened the standards for granting a Chapter 7 discharge passed in the House of Representatives earlier this year, but no parallel legislation was introduced in the Senate before that chamber recessed for the holiday last Wednesday. Harris’ e-mail address is a[email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.