The law that drastically changed the Bankruptcy Code in October 2005 was supposed make it tougher to escape debts and reduce the number of filings. It worked, for a time.My Comment: Actually the law never worked. There was a mad rush of filings in 2005 to beat the law changes. That reduced filings in 2006 and perhaps for a bit in 2007. Now nature has reasserted itself. The spike that came immediately following and the subsequent slowdown is not a sign that anything "worked". There is also an unseen effect that we will see in just a bit.
Although the law made filing for bankruptcy more complex and expensive, the number of cases locally and nationally is rising again. Experts predict a big hike later this year, triggered by the nation's wobbling economy and heavy levels of consumer debt.
National statistics indicate the trend is well under way, with bankruptcy filings by individuals up 27 percent nationwide in the first quarter of 2008 compared to the year-ago period, according to new figures from the American Bankruptcy Institute, a research and education group.My Comment: Bankruptcies in 2005 were unusually high, and bankruptcies in 2006 were unusually low. Also Katrina hit in 2005 so the data is distorted by natural disasters (hurricanes) and manmade disasters (the bankruptcy reform act of 2005).
Individuals' bankruptcies nationwide rose 40 percent in the 2007 calendar year compared to 2006. The ABI, which bases its figures on data from the National Bankruptcy Research Center, said the increase is due to rising household debt and growing mortgage problems.
The full impact of the nation's sliding economy is not reflected in the most-recent figures — that may take a few more months — and many lawyers believe there will be a lot of bankruptcy-related business up for grabs this year.
"Nationally, people think that the No. 1 area of growth this year will be bankruptcy," said Carrie Titus, division director of Robert Half Legal, which provides legal staffing to law firms and corporate legal departments.
The reason the increase is expected later this year is because the impact of bad economic developments doesn't translate immediately into a sharp hike in bankruptcy filings, said Jack Williams, scholar-in-residence for the Alexandria, Va.-based Bankruptcy Institute. He's also a bankruptcy professor at Georgia State University College of Law in Atlanta.
"That spike generally lags about six to nine months behind the economy," Williams said. "Bankruptcy is a lagging economic indicator."My Comment: Typically there are spike in bankruptcies well into the recession and lingering after because recoveries are uneven. We are now starting to see spike with a recession barely underway. This is not a good sign. Nor was the last three job reports. See Unemployment Soars, Jobs Collapse for more details.
Because of this, Williams predicted that the number of filings across the country, including business and individual cases, will rise to between 1.2 million and 1.4 million by the end of 2008. Most cases are filed by individuals.
"This is a huge number…"…. This is fast approaching previous levels," he said, referring to the period before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. "It's the very thing that Congress sought to fix. It will turn out to be a legislative failure."
Changes to the Bankruptcy Code have drawn widespread criticism from debtors' lawyers, who describe the law as ill-conceived and badly written. Some provisions refer to sections that don't exist, some amendments contradict others and some sentences don't make sense, they said.My Comment: The banking industry got every provision it lobbied for. Most likely, the sentences lobbyists wrote made grammatical sense. It now looks like no one bothered to read the rest of the bill. If so, it should not be too surprising. This does go to show that we could save money by directly electing lobbyists instead of congressmen. The legislative process is so flawed lobbyists write our legislation anyway. Why not cut out the middle man?
But even if lawyers and the courts are learning to work with the new bankruptcy law, some of the changes have taken their toll on consumers — and even may have contributed to the mortgage loan crisis, said T.J. Mullin, a bankruptcy lawyer in Clayton.My Comment: There is the seen and unseen. The seen suggests the law "worked" even if only for a while. It was a mirage. The unseen led to an increase is foreclosures and walk aways. Also unseen is the mammoth increase in mortgage debt, the mammoth drop in lending standards, and the mammoth increase in credit card lending, all on the belief that consumers could not write off their debts.
Before the law's enactment, Mullin had helped to save thousands of clients' houses by having them reorganize their finances through Chapter 13 filings. These filings are geared toward individuals with regular income who temporarily are unable to pay their debts, but can do so over time.
In the past, many Chapter 13 debtors have been able to keep their homes through the use of repayment plans that stopped foreclosures or repossessions.
However, the 2005 bankruptcy law changes imposed so many additional requirements and restrictions that Chapter 13 no longer is a practical way for many wage earners to save their houses from foreclosure, Mullin said. Also, the extra work required by the new law has caused the typical attorney's fee to double, putting it beyond the reach of most people.
"The passage of the bankruptcy amendments in 2005 will without a doubt lead to many more foreclosures, distressed sales of real estate, neighborhoods going into decay and families shattered," Mullin said. "We are seeing only the tip of the iceberg at this time unless some changes in the bankruptcy law are passed to allow this valuable remedy to one again be efficiently offered."
It's tough to pay the bills when you don't have a job. It's tough to pay the bills when you are in a liar loan that you cannot afford. It's tough to pay the bills when gasoline and food costs are soaring. Expect to see mammoth increase in bankruptcies later this year.
You can forget about that "means test". Under a Democratic Congress and Democratic president (Obama), expect to see massive revisions in Credit Card law. The law will be revised, or consumers will lose their job (on purpose if necessary) to prove they have no means to pay back debt. If you have no job you have no means. The means test is going to blow up in spectacular fashion. Massive writeoffs in credit card debt are coming.
Bankruptcy filings jump 30%
Bloomberg is reporting Bankruptcy filings jump 30%
More than 90,000 bankruptcy filings were made in March, the highest since insolvency laws became more restrictive in October 2005, according to statistics compiled from court records by Jupiter ESources. Filings in March were 30% above the pace in 2007.Business bankruptcies appear to be soaring as well. Let's take a look at a few recent cases.
California led the nation with a 42% increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter ESources.
"We're seeing fairly high readings in these measures of distress like bankruptcies, foreclosures and mortgage defaults," said Chris Low, chief U.S. economist at FTN Financial in New York. The most affected states are "also where the most housing-related business growth was," Low said.
The states most affected by the housing recession, including California, Nevada and Florida, were among those with the largest increases in bankruptcies.
They also are among states where unemployment rates exceed the national average. The jobless rate in California was 5.7% and Nevada's was 5.5% in February. Nationally, 5.1% of workers were unemployed in March, the highest level since September 2005, the Labor Department reported Friday.
Tailing California's 42% rate, Florida had a 35% increase in bankruptcy filings at an annual pace in the first quarter and Nevada saw a 32% rise, according to Oklahoma City-based Jupiter's Automated Access to Court Electronic Records service.
Jewelery Store liquidation sale
Friedman's begins bankruptcy liquidation sale
Friday, April 4, 2008ATA Airlines Goes Under
Addison-based Friedman's Inc., operator of 455 jewelry stores in 23 states, begins a bankruptcy court-ordered liquidation today. Friedman's, which also operates stores under the Crescent brand, filed for bankruptcy in January.
ATA seeks bankruptcy protection
Low-fare carrier ATA Airlines Inc. said Thursday it has filed for bankruptcy court protection, grounding all flights and stranding thousands of passengers.Skybus Is Bust
"We deeply regret the disruption and hardship caused by the sudden shutdown of ATA, an outcome we and our employees had worked very hard and made many sacrifices to avoid," Doug Yakola, the airline's chief operating officer, said in a statement.
ATA said it was forced to ground operations because it lost a key military charter contract. In addition to scheduled airline service, ATA also provided charter service for the Pentagon.
Skybus ceasing operations, plans to file for bankruptcy.
Saturday, Apr. 5, 2008Bye Bye Miss American Pie
The celebrated discount airline is ceasing all operations today and plans to file for bankruptcy protection next week, becoming the latest of the nation's airlines to fall because of rising fuel costs and a slowing economy.
The shutdown deals a major blow to the Pease Development Authority as it strives to tap the potential of Portsmouth International Airport.
"Skybus struggled to overcome the combination of rising jet fuel costs and a slowing economic environment," the Ohio-based company said in a statement on its Web site. "These two issues proved to be insurmountable for a new carrier.
Vicorp Restaurants Inc. has filed for Chapter 11 bankruptcy
Vicorp Restaurants Inc. has filed for Chapter 11 bankruptcy to restructure its debts and closed 56 Bakers Square restaurants, including nine in Illinois.Nursing Home Company Files Bankruptcy
The Denver-based company closed Bakers Square restaurants in Lake in the Hills, St. Charles and Oswego on Wednesday. The company’s location in Crystal Lake remains open.
Vicorp spokeswoman Amy Moynihan said 1,700 of the restaurants’ 13,000 employees would be laid off as part of the cost-savings effort.
In a prepared statement Thursday, company officials said that lenders agreed to provide a $60 million financing arrangement to keep the remaining restaurants at normal operations during the restructuring.
Vicorp Chief Executive Officer Ken Keymer blamed the slowing economy and increasing operations costs for the bankruptcy filing and restaurant closings.
“Certainly, we regret the necessity of filing Chapter 11 and the closure of 56 restaurants in various communities across the country,” Keymer said. “The company concluded that today’s court filings were both prudent and necessary.”
Vicorp owns 193 Bakers Square restaurants in six states, including Illinois.
Marathon Healthcare files for bankruptcy
April 4, 2008Aloha Grounded
Marathon Healthcare Inc, an East Hartford-based nursing home company that operates six facilities in Connecticut, including in Waterbury, Torrington and Prospect, filed for bankruptcy protection late Thursday.
The filing comes about three months after the state Department of Social Services launched an investigation of the company over concerns that it was struggling to meet its financial obligations, and about a month after a state audit said Marathon's finances should be closely monitored.
Aloha Air halting passenger service
March 31, 2008Three airlines went under in two weeks (a little problem with jet fuel costs on top of falling demand perhaps). And in the last few days there was a Jewelry store liquidation sale involving 455 stores, Bakers Square closed 56 restaurants, and a nursing home filed for bankruptcy. Within the past month, several furniture stores have file bankruptcy including Wickes and CJ Woodmaster. This is just a down payment. Regional banks overleveraged in commercial real estate loans are going to fail. It's just a matter of time.
Aloha Airlines said Sunday it will halt all passenger service after Monday, signaling the end of an airline that has served Hawaii for more than 60 years.
Aloha, which filed for bankruptcy for Chapter 11 bankruptcy protection on March 20, was a casualty of fierce competition and rising fuel prices. The airline said it will stop taking reservations for flights after Monday.
"We simply ran out of time to find a qualified buyer or secure continued financing for our passenger business," said Aloha President David Banmiller in a statement. "We had no choice but to take this action."
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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