Bankruptcy filings back on the rise

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which took effect Oct. 18, 2005, was 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, and filings dipped in early 2006 before beginning another upward trend late last year and into 2007.

In the first six months of 2007, 5,259 bankruptcies were filed in the western district of Missouri – a 47 percent increase over the same period last year. For three consecutive quarters, the number of bankruptcies filed in the western district has increased, starting with 2,169 in fourth-quarter 2006 and growing to 2,886 in the most recent quarter.

The number of businesses filing for bankruptcy in the western district, however, has remained fairly stable during the past year. In third-quarter 2006, 47 businesses filed for bankruptcy. After a slight dip in the fourth quarter, business filings numbered 45 in first-quarter 2007.

Cases filed in the Springfield division numbered 948 for the first half of 2007, said John Cisternino, chief deputy clerk for Missouri’s western district. Kansas City saw the highest number of bankruptcies in the district with 2,383, followed by Jefferson City at 1,018, Cisternino said.

“Our numbers are going back up,” he said. “(The law) isn’t, on the surface at least, doing what it is they hoped it would do.”

The upswing in bankruptcy filings also is occurring statewide and nationally. In the first half of 2007, more than 10,500 cases were filed in Missouri, where 3.25 bankruptcy cases are filed for every 1,000 residents. Missouri ranks 11th among states with the highest per capita rate of bankruptcy filings.

Nationwide, more than 404,000 bankruptcies have been filed during the same period, according to the American Bankruptcy Institute. About 273,000 bankruptcies were filed during the same period last year.

“The new upward trend in bankruptcies reflects the economic reality of households under increasing financial stress,” ABI Executive Director Samuel J. Gerdano said in an Aug. 16 news release. “We expect bankruptcy filings to continue to rise for the balance of 2007.”

Springfield attorney Dan Nelson with Lathrop & Gage LC echoed Gerdano’s forecast. Nelson, a bankruptcy trustee who is assigned to a certain number of filings each month, said the volume of cases filed in southwest Missouri has slowly crept upward over the last year.

“Right now, I would say at least in our area, we’re probably back to about half strength of what we saw before the change in the law,” Nelson said.

Prior to the legislation, Nelson said he handled an average of 75 to 80 bankruptcy cases each month. For much of 2006, his monthly bankruptcy caseload was between 10 and 20 cases. But by the first quarter of this year, his monthly caseload grew to between 20 and 30 cases, and for the last three or four months, he said he’s been assigned to about 40 bankruptcy cases each month.

“There’s been a lot of speculation in the news about what effect the refinancing of these adjustable-rate mortgage loans is going to have,” he said. “I think we’re seeing some of that now, but I think it’s just the tip of the iceberg.”

Nelson said the usual suspects – credit-card debt, medical bills, job loss and divorce – are central factors in many of the bankruptcy cases he’s reviewed. He also noted that a “means test” built into the new law that is used to calculate debt repayment plans doesn’t even apply to households earning less than an area’s median income.

“In southwest Missouri, what we’re seeing is that the new law really doesn’t apply to that many people,” Nelson said. “We’ve got a lot of people who are below the median income guidelines, so the new law effects really no change for them at all.”

Nelson said there’s been talk about revisiting the law, but he doesn’t expect that to happen for several years. Nelson is a member of the National Association of Bankruptcy Trustees, a lobbying group he said has been unable to convince Congress more bankruptcy reform is needed.

First-half Filings

Bankruptcy filings in the western district of Missouri during the first six months of 2007 are up 47 percent compared to the same period last year.

Kansas City – 2,383

Jefferson City – 1,018

Springfield – 984

Joplin – 473

St. Joseph – 401

Total – 5,259

Source: U.S. Bankruptcy Court, Western District of Missouri