Monday, March 5, 2012

Bankruptcy Rates Fall

New bankruptcy cases in Western New York continued to fall in February at a much more moderate pace than last year, as the level of filings approaches what may be a "new normal" in a continuing bad economy.

Applications for bankruptcy protection last month fell by 5 percent, to 534 cases, in the 17-county region that includes both Buffalo and Rochester. That's according to new figures from the U.S. Bankruptcy Court for the Western District of New York.More specifically, the court in Buffalo reported 351 cases, down by 4 percent from 364 a year ago, while the Rochester court recorded 183 cases, down by 7 percent from 197 a year ago. That's the second-lowest pace in at least 10 years.For the two months so far this year, overall filings are down by 4 percent, to 959, including a 3 percent drop in Buffalo, to 624, and a 4 percent drop in Rochester, to 335.By contrast, the pace of new filings last year fell by 20 percent in almost every month of the year, as far fewer consumers sought protection from bankruptcy.

"It looks like the downward trend in Western New York is stabilizing some. Cases were down more last year than this year locally," said Western New York bankruptcy attorney Jeffrey Freedman.

Attorneys and other experts say consumers can't afford the bankruptcy filing fees and legal costs, so many aren't bothering with the expense. Other consumers simply don't face an urgent need to file because they had fewer assets to protect and more legal protections to take advantage of, or they weren't getting in as much trouble in a world of tightening credit.

For example, Freedman said his firm won't file for clients who are "judgmentproof" or have less than $10,000 in debt."The economy is stagnant in Western New York. Clients aren't getting too much credit and, in turn, aren't spending, which, in turn, doesn't allow employers to hire," Freedman said. "It's still about the cost of filing a bankruptcy case."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. 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. Also, attorneys have been finding alternative ways to help clients, especially since certain debts -- such as student loans -- can't be discharged in bankruptcy anyway. "We know people have a pile of student loan debt," Freedman said. So they're filing more lawsuits against debt collectors, alleging violations of federal or state collections laws, and then negotiating debt forgiveness as part of the settlement. Or they're using more debt arbitration or debt reduction outside of bankruptcy, in which they negotiate directly with creditors or debt buyers to accept pennies on the dollar in a lump sum payment."This practice area has been increasing monthly," Freedman said. "We would do this for a client who had other assets they might lose by filing bankruptcy."
However, the tide could turn, at least temporarily, as Freedman said there can be a "bump-up" in filings after tax refunds are issued, when struggling consumers are suddenly flush with cash. That surge can last for several weeks and has driven up filings by as much as 7 percent in 2008. And at least one national bankruptcy marketing service has begun aggressively advertising on the radio in Western New York to encourage debt-burdened consumers to consider bankruptcy. The service, Bankruptcy Central, is not a law firm itself, but rather provides the names of local attorneys to consumers who call its toll-free number. The lawyers pay an advertising fee to the service, which is run by attorney Kevin W. Chern of Chicago. Debtors can file for bankruptcy protection under one of several chapters of the federal code. Chapter 7 allows consumers or businesses to liquidate their assets to pay what they can, while writing off their remaining unsecured debts and starting fresh. Chapters 11 and 13 provide for businesses or consumers, respectively, to reorganize their debts and develop a long-term repayment plan. For February, there were 377 filings under Chapter 7 in the entire district, including 254 in Buffalo and 123 in Rochester. There were another 154 filings under Chapter 13, including 95 in Buffalo and 59 in Rochester, and there were three cases reported under Chapter 11, with two in Buffalo. So far this year, there have been 689 cases under Chapter 7, 264 under Chapter 13 and five under Chapter 11.Geographically, Erie County continues to have the most, with 224 cases in February and 392 so far this year. Niagara County is No. 2, with 57 cases last month and 91 since Jan. 1. Chautauqua County is third, with 29 cases in February, followed by Allegany and Cattaraugus counties, with 10 each. Rounding out the local counties are Genesee County with eight, Orleans County with seven and Wyoming County with five.


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