Bankruptcy filings have fallen so dramatically the past few years that one attorney believes bankruptcy attorneys may wind up as lonely as Maytag repairmen.
“It seems the only people filing for bankruptcy these days are bankruptcy attorneys,” said Mark Zuckerberg, an attorney with offices in Columbus, Bloomington, Anderson, Richmond and Indianapolis.
Zuckerberg said attorneys, including himself, rely on volume when focusing solely on bankruptcies. He has seen a drop of 70 percent in volume in the past two years.
In 2011, there were 278 bankruptcy filings in Bartholomew County. That’s 30 percent lower than the 398 filed during 2009, the year the recession ended, according to statistics compiled by the U.S. Bankruptcy Court, Southern District of Indiana.
During that same period, bankruptcy filings in Jackson County fell 38 percent from 391 in 2009 to 244 this past year. The number of bankruptcies filed in Jennings County during the same period dropped 50 percent from 282 in 2009 to 141 this past year.
Why do they file?
People file bankruptcy to rid themselves of debt, although some debt cannot be erased.
Those debts include most taxes, child support, alimony, most student loans, court fines and criminal restitution and personal injury caused by driving drunk or under the influence of drugs.
The two most common types of bankruptcy filings are Chapter 13
and Chapter 7.
A Chapter 7 (liquidation) bankruptcy involves individuals, partnerships or corporations who cannot pay their bills and can’t save anything.
More than half the filings in the district each year typically are Chapter 7. This past year, for instance, 55 percent, or 12,727, of the 18,429 filings in the Southern District of Indiana, involved Chapter 7 bankruptcies. There also were 5,629 Chapter 13 (individual or small business) bankruptcy filings; 72 Chapter 11 (business) filings; and one Chapter 12 (family farmers) filing.
In 2009, there were 27,394 bankruptcy filings in the district including 19,126 Chapter 7 filings and 8,000 Chapter 13 filings.
In a Chapter 7 filing, a trustee takes over the property of the petitioner, and any property of value will be sold to pay creditors. Petitioners may be able to keep some personal items and possibly real estate depending on the law of the state where they live.
The trustee appointed in each case is selected from a panel of private attorneys selected for each of the court’s four districts. Those districts are located in Evansville, Indianapolis, New Albany and Terre Haute.
A person or a very small business such an independent truck driver or a painting company can file a Chapter 13 bankruptcy, which allows the person to keep their property, said Seymour attorney Joe Black.
Black is the Chapter 13 standing trustee for the court’s New Albany Division. That’s where filings from Jackson County wind up.
Bankruptcy filings from Bartholomew County are assigned to the Indianapolis Division of the same court.
Individuals or small business owners filing Chapter 13 bankruptcies must earn wages or have some other source of regular income and must agree to pay part of their income to creditors.
The court must approve a repayment plan and budget. A trustee such as Black is appointed to oversee the plan, set up a repayment plan, collect payments, pay creditors and make sure petitioners live up to the terms of their repayment plan.
The rise and fall of filings
Black, who has been a trustee for 28 years, said bankruptcy filings rise and fall as consumer debt rises and falls.
“I think filings are down now because there’s less consumer debt,” he said. “The recession kind of wiped out some people.”
Black said there’s not been that much change in the economy, and some people are just getting by now.
“Creditors have not been real active going after people,” he said. “I always base (the number of bankruptcy) filings on consumer debt, and that’s starting to rise, so in about two years, I think filings will go up again.”
He said banks are starting to lend money again, and people will eventually run into one of the four issues that lead to bankruptcy: Divorce, job loss, medical bills or the death of a family member.
None of those issues can be controlled by the person filing for bankruptcy, Zuckerberg said.
Black said the recession and housing bubble left many people in over their heads in debt and that led to the rise in filings during the recession that began in December 2007 and ended in June 2009.
Zuckerberg agreed and said Chapter 13 filings are down for several reasons.
“A lot of people used to do anything they could to save their home,” he said.
Because many homeowners found themselves owing more than their home was worth, they had no equity and nothing to save so they walked away from the home and mortgage.
“To many, it was live in the house as long as you can,” he said.
Banks head back to court
Banks have been timid about filing lawsuits to try to get those homeowners to pay up, but that may change in the coming months, Zuckerberg said.
He said there are some state and federal programs to keep homes affordable. Other programs offer help to people in financial trouble and some programs allow people to modify mortgages to ease financial problems.
Bankruptcy filings in Bartholomew County grew
76 percent from 226 in 2007 to 398 in 2009. During that same period, filings in Jackson County were up 75 percent from 224 in 2007 to 391 in 2009.
Mark E. Risser, a Seymour attorney focusing on bankruptcy, said there may be a slight decline in bankruptcy filings at this time, but he’s not seeing a big drop.
He represents clients in Bartholomew, Jackson, Jennings, Scott and Washington counties, who file Chapter 7 or Chapter 13 bankruptcies.
“It’s sad to say, but a lot of people have been caught losing their jobs,” Risser said.
That can start a domino effect in which the person gets sick or their child gets sick and needs health care — and they’re between jobs.
“You’re just going to be ruined,” Risser said. “Bankruptcy has been called the working man’s insurance policy.”
Zuckerberg said almost every person who filed for bankruptcy are good hardworking people who have paid their bills on time.
“I always tell people to use bankruptcy as a last resort,” he said.
Very few abuse the process
Risser said people don’t begin their adult lives with the thought of filing bankruptcy, and very few abuse the process.
“For the most part I see a lot of tears and a lot of people who don’t want to be here,” he said.
Risser said bankruptcies can cause marital stress, and some lead to marriage breakups. But a visit to his office often ends with the people saying just discussing the issue has eased the stress.
Bankruptcy doesn’t necessarily have to be a negative thing, Risser said.
“It can be a positive,” he said. “It’s part of the consumer process. There are going to be people who have problems. They come in here, and they are miserable, but there’s a way out.”
He said he can actually hear people breathe a sigh of relief after hearing what Zuckerberg can do for them.
“Bankruptcy can help you rebuild your credit and your credit score,” he said. “It can be a tool to get you back on track.”