Bankruptcies filed in Springfield still on the upswing

Bankruptcies filed in the Springfield division of U.S. Bankruptcy Court last year jumped 42 percent from 2006, with Chapter 7 cases accounting for much of the debt-driven surge.

Nearly 2,000 bankruptcies were filed in the division, which covers 16 counties in southwest and south-central Missouri, last year, according to John Cisternino, chief deputy bankruptcy clerk for Missouri’s western district. In 2006, 1,395 cases were filed in the Springfield division, Cisternino said.

Chapter 7 bankruptcy filings saw the biggest increase in 2007 – rising 46 percent to 1,531 filings.

In Chapter 7 cases, debtors turn over certain property to a trustee, who then sells the assets and uses the proceeds to pay creditors. But in most cases, Chapter 7 debtors do not have assets beyond what they are legally allowed to keep, and most of their debts are discharged within 90 days of filing, according to the American Bankruptcy Institute.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which took effect Oct. 18, 2005, was intended to steer those who could repay their debts toward Chapter 13 repayment plans rather than filing Chapter 7 bankruptcy and liquidating their assets.

U.S. Bankruptcy Court was inundated with new cases before the law took effect. The number of bankruptcy filings in Missouri peaked at 25,000 in 2005 right before the new law took effect, then dropped to 7,921 in 2006 before climbing to 10,792 last year, Cisternino said.

Chapter 13 cases filed in the court’s Springfield division increased 27 percent to 425 filings, a modest gain compared to the spike in Chapter 7 filings.

Ken Reynolds, an attorney with Springfield-based Reynolds, Gold & Grosser PC whose practice areas include bankruptcy and creditor’s rights, said his firm has seen a significant increase in bankruptcy filings across the board. While Chapter 13 cases are up slightly, Reynolds said Chapter 7 filings represent the vast majority of bankruptcies handled by his office.

The main reason for most consumer bankruptcies is credit-card debt followed closely by medical debt, Reynolds said, suggesting senior citizens have been hit hardest.

“The elderly are the greatest increase – populationwise – of people filing bankruptcy that we’ve noticed, and it’s a direct result of medical debt they’re incurring,” he said. “They can’t afford health insurance. They use their credit cards to pay their medical debt, and it’s a terrible thing that’s going on in our economy right now.”

Attorney Tom O’Neal, vice president in charge at the Shughart, Thomson & Kilroy PC office in Springfield, said he also found credit-card debt at the root of many bankruptcies. As a member of the U.S. Bankruptcy Court Panel of Trustees for Missouri’s western district, O’Neal reviewed credit-card purchases in 300 Chapter 7 bankruptcy cases during a six-month period about five years ago.

“It was pretty clear people were just using them for living expenses,” he said. “They were buying gasoline (and) food at grocery stores.”

Both O’Neal and Reynolds said the country’s economic downturn is likely playing a role in the rising number of bankruptcies, but neither was sure just how much of a role. Reynolds said three Springfield-area builders filed for bankruptcy in one day last week, and he expects the total number of filings in 2008 to outpace last year’s total.

Statistics supplied by Cisternino for the first quarter of this year seem to support Reynolds’ prediction. Through March, 538 bankruptcy cases were filed in the Springfield division, up 28 percent from the same period last year.