Struggling economy keeps bankruptcy courts busy

WASHINGTON — Bankruptcy courts are busier than they've been in years, as distressed families and businesses increasingly seek respite from the financial storm.

Nationwide, bankruptcy filings rose 20 percent in the 12-month period ending June 30, according to records released Tuesday. The 1.57 million cases filed in federal courts were more than at any time since Congress tightened bankruptcy rules in 2005.

"We've seen an increase in bankruptcy filings across the board," Fresno attorney Benny D. Barco said Tuesday. "A lot of it has to do with loss of employment."

The three months between April 1 and June 30 proved particularly hectic, as 422,061 bankruptcy filings were entered nationwide. This exceeded the number in nearly every quarter going back to 1995, records compiled by the Administrative Office of the U.S. Courts show.

For federal bankruptcy courts in Sacramento, Modesto, Fresno and Bakersfield, the grim business just keeps on coming.

On Monday, Aug. 16, a seemingly typical day, a total of 129 new bankruptcy filings were recorded in the three Central Valley courts. Together, they reflected a cross-section of how bankruptcy proceedings work amid the Great Recession.

In the Fresno bankruptcy court, proprietors of a Kern County-based fitness club paid a $299 fee and filed for Chapter 7 bankruptcy protection Monday. Chapter 7 is also known as a liquidation bankruptcy, where non-exempt assets are sold to pay creditors.

In the Modesto bankruptcy court, a Tracy man showed up shortly after 9 a.m. Monday to file for Chapter 13 protection. This is also called reorganization bankruptcy, where the debtor prepares a plan for paying back creditors over a three- to five-year period.

Nationwide, Chapter 7 filings increased by 25 percent compared to the year ending June 30, 2009, while Chapter 13 filings increased by only 10 percent. Chapter 7 can be harder to qualify for but is considered more lenient for the debtor.

"We're seeing a lot more Chapter 7 filings, (because) it's a way to walk away from the debts," said Barco, who is with the firm Pascuzzi, Moore & Stoker.

Barco added that his firm is also seeing more two-income and relatively high-income families coming in to seek bankruptcy protections.

Modesto attorney Robert Buchler added that he saw a surge of bankruptcy petitions around the time the NUMMI auto plant closed in Fremont earlier this year. Currently, though, Buchler said he's seeing a lull in bankruptcy filings compared to past surges.

"It costs money to go bankrupt," Buchler noted.

The filings themselves convey poignant details missing in the broader statistics. A Sacramento man's Chapter 7 petition filed Monday, for one, reports he owns a 1999 Mercedes ML 420. It also reports the off-road vehicle has a blown transmission and 180,000 miles on the engine.

A Stockton woman who filed for Chapter 7 protection Monday listed among her assets her wedding rings, which she valued at $200. A resident of rural Selma in Fresno County tallied his $20 watch, the $162.27 he reported having in his wallet — and thousands of dollars in credit card debt.

The proprietors of the Kern County fitness facility reported having one, unnamed dog, valued at $0, as well as debts exceeding $300,000.

The number of bankruptcy filings spiked upward in 2005, as Congress moved toward approval of the Bankruptcy Abuse Prevention and Consumer Protection Act. Backed by credit card companies, among others, the law imposed new restrictions and requirements on those seeking bankruptcy protection.

The number of bankruptcy filings fell immediately after the law took effect, but it's been climbing ever since.