host posted on January 10, 2012 10:41
By Jonathan D. Epstein
BuffaloNews.com
Bankruptcy filings maintained their downward pace all of last year, as the total number of new cases in the Buffalo Niagara region fell 18 percent for the full year.
A total of 4,614 bankruptcy cases were filed in Buffalo last year, according to the U.S. Bankruptcy Court for the Western District of New York. For all of 2011, new filings in the Buffalo and Rochester areas fell by 19 percent, to 7,093 from 8,762 in 2010. The filings in the Rochester area dropped by 21 percent to 2,479.
The decline slowed considerably in December, as the district recorded 506 new cases, down just 6 percent from 537 in December 2010. That included a drop of only 2 percent in Buffalo, to 330 from 336, while Rochester filings fell 12 percent to 176 from 201.
Still, aside from late 2005 -- right after Congress sharply tightened federal bankruptcy laws -- it's the lowest tally for a December in at least a decade. And the annual tally is nearly equal to the low of 7,019 in 2006.
Moreover, both the Buffalo and Rochester courts posted drops in every month of the year, a continuous trend dating back to May 2010.
But while the decline would appear to portend an improvement, the reality may be the opposite, lawyers say.
"The sharp decrease in bankruptcy filings is correlated to the weak state of the Western New York economy," said Peter D. Grubea, a local bankruptcy lawyer. "The long-term trend for foreclosure rates in this area and bankruptcy filings will point down unless there is a major economic shift."
Nationwide, total bankruptcy filings fell 12 percent last year, to 1.38 million from 1.56 million, including a 19 percent decline in commercial filings.
"We have reached a point where consumers simply cannot afford the options that could help them get out from under their burden of debt," said bankruptcy lawyer Jeffrey Freedman, whose firm is ranked second, by volume, behind Grubea's.
"With stricter bankruptcy and debt-repayment program laws in place, credit counseling, repayment plans and bankruptcy have become too expensive, given people's limited incomes," Freedman said.
Grubea and Freedman said bankruptcies have fallen not because people aren't getting into as much financial trouble, but because they can't afford the legal and filing fees of at least $1,000.
"This demonstrates that the general need for bankruptcy is still there, but that the financial ability of clients to pay the fees has decreased," Grubea said. "People have integrated so many new expenses into their budget that their discretionary income available to pay one-time fees for lawyers or other unexpected expenses is virtually non-existent."
And debtors who used to turn to friends and family for help paying legal fees, often with credit cards, can't do so because "the availability of credit to the population as a whole is diminished," he said.
"Credit card companies are not mailing out 10 preapproved credit card applications per week like in the past. Dogs, cats and school kids are no longer getting credit cards," Freedman said. "Car loans are also more difficult to obtain as well as car leases. In the past, as long as you were breathing, you were able to secure a car loan. Not anymore."
Many debtors also are not under imminent pressure to seek court protection from creditors. Those who do file are facing a tax foreclosure, wage garnishment or lawsuit that they have to address immediately, Grubea said. Others are "likely to be either unemployed or judgment-proof, so even though they would like to file bankruptcy, it isn't a critical need," he said.
That's because the population in Western New York is generally older, and retired people are more likely to derive their incomes from government sources that are exempt from seizure to pay debts, Grubea said.
Some clients are even better off not filing for bankruptcy, because of state or federal laws that protect more of a debtor's bank account -- the first $2,500 -- and limit wage-garnishment to 10 percent of gross pay, Freedman said.
Also, home foreclosures have been slow for more than a year amid the "robo-signing" controversy, as banks suspended activity while they fixed paperwork problems. That means less pressure to file bankruptcy for those who might otherwise face the loss of a home.
Grubea said his offices received more inquiries about filing for bankruptcy in 2011 than in any prior year, but the percentage of clients who followed through fell. And he predicted that filings will "probably" level off at the end of 2012 or 2013 as new foreclosures are filed, but that will only be temporary.
He also cited a correlation between higher unemployment rates and lower bankruptcy filings, which is "not intuitive" but matches the "proven trend of increased bankruptcy filings when the economy improves."
"The day we see more people getting back to work, that's when we'll see bankruptcy filings, debt-repayment plans and credit counseling begin to increase, as people seek relief from their debts," Freedman said. "Many will not be able to get the fresh start they deserve until that day."
By type of filing, most of the cases locally last year -- 5,230 -- continued to be under Chapter 7 of the U.S. Bankruptcy Code, which allows both individual and business debtors to liquidate their assets to pay debts, write off anything left over and wipe their slates clean for a fresh start. Those filings included 3,413 in Buffalo and 1,817 in Rochester. All but 175 of those were individual or consumer filings.
Another 1,826 debtors filed under Chapter 13, including 1,174 in Buffalo and 652 in Rochester. All but 43 were individuals. Thirty-four filed under Chapter 11, including 25 in Buffalo and nine in Rochester.
Chapters 13 and 11 allow business and individual debtors, respectively, to restructure and reorganize debts in preparation for repaying them. The 2005 reforms were designed to make it harder for individual debtors to file under Chapter 7 and escape their debts if they could afford to repay them, but the fact that most cases are still Chapter 7 shows most filers can't.
Geographically, most of the Buffalo cases last year came from Erie County, with 2,843 filings, down 18 percent. Niagara County was second, with 683, down 23 percent.
Chautauqua County was third, with 396, down 24 percent, followed by Cattaraugus County with 184, down 22 percent, and Genesee County, which was flat at 166 cases. Orleans County tallied 121 cases, down 17 percent.
Only Allegany and Wyoming counties posted increases, with 111 and 107 cases, up 4 percent and 9 percent, respectively.