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Bankruptcy filings here dip again in November

Posted: December 07, 2011

By Jonathan D. Epstein
The Buffalo News

New bankruptcy filings in Western New York dipped again in November for the 18th straight month, as fewer people can afford to file for court protection or have fewer reasons to do so.

According to the U. S. Bankruptcy Court for the Western District of New York, new cases fell by 17.5 percent in November in the Buffalo and Rochester courts, to 531 filings.

That’s the lowest level for the month of November in at least a decade, not counting the artificially low level from 2005, which was just a month after more stringent federal bankruptcy legislation took effect.

November’s tally included 335 in Buffalo, down by 22.1 percent, and 196 in Rochester, down by 8.4 percent. For the year to date, filings for the entire district are down by 19.9 percent, to 6,587, including a 19.2 percent drop in Buffalo, to 4,284, and a 21.2 percent decline in Rochester, to 2,303.

The number of new filings locally has been falling every month since May 2010. Yet conditions are prime for a higher level of filings, not a drop, experts say. Despite tightened credit card and auto lending standards, consumers accumulated 66 percent more credit card debt during the second quarter of 2011 compared with a year earlier — up by $18.4 billion—and that debt had leapt by 368 percent from the second quarter of 2009, according to CardHub. com.

But the number of people seeking help from credit counselors fell by 20 percent from 2009 to 2010 and continued to drop, while bankruptcy filings have fallen steadily.

“Longtime unemployment is still around 9 percent, and poverty is increasing, with nearly 15 percent of Americans using food stamps,” said bankruptcy attorney Jeffrey Freedman. “Additionally, the use of credit is increasing. That’s a combination that would typically result in more bankruptcy filings, so we have to wonder what is happening.”

Freedman and other attorneys have cited a litany of contributing factors, including lower foreclosures. The threat of losing a home can often spur debtors into filing for bankruptcy to protect it, but the controversy over “robo-signing” and faulty court documents has slowed foreclosures considerably, giving less of an incentive for bankruptcy filings.

“Regulatory agencies have scared the heck out of the foreclosure processors, and new foreclosures are all pretty rare now,” Freedman said.

But a bigger reason for the drop appears to be the same worsening economy that would otherwise contribute to more filings. Because of job loss, wage cuts or other economic factors, debtors simply can’t afford to file for bankruptcy or they don’t have any income or assets to protect.

Filing fees are about $300, plus credit counseling costs of $70 to $100. Attorneys also have to bill clients for running tax lien, judgment and other document searches or requesting federal and state tax transcripts to verify information. And they “have to make reams of copies, as the trustees want paper copies of documents,” Freedman said.

In all, fees can range from $750 for the simplest filings to several thousand dollars for more complicated cases—compared with a maximum of $750 for complicated cases 30 years ago.

So debtors are either giving up and allowing wages to be garnished — credit card or other lenders can usually only get 10 percent of a person’s gross pay — or they’re seeking alternatives, such as suing collectors for harassment under the Fair Debt Collection Practices Act and using settlement funds to repay debts.

Already, debt-collection lawsuits are rising nationwide, with New York among the five states with the largest number. Sophisticated professionals, who understand their rights, are now experiencing more problems with debt and flagrant violations of enhanced laws by collectors.

“The low filings we are experiencing today are not a sign of a healthy or recovering economy,” Freedman said. “They are a sign of an economy that is so sick, it could almost be considered to be on life support.”

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