Since a change in bankruptcy laws resulted in a historic high number of filings in 2005, bankruptcies have dropped nationwide; however, officials say they are trending up again. 2009 was one of the highest recent years on record.
There were more than 1.3 million consumer bankruptcies in 2009, and business bankruptcies totaled 89,402, compared with 64,584 the previous year, according to data compiled from court records. The 2009 figures reportedly are the most since businesses and consumers rushed to file before the October deadline in 2005 when the United States Bankruptcy code changed. That year there were more than 2 million bankruptcies in the U.S.
Enid attorney David Ezzell said the change in bankruptcy law had an impact on the number of bankruptcies.
“The last three days before the deadline of October 2005, there were between 6,000 and 7,000 bankruptcies filed. The new law made it more expensive to get bankruptcy, but it did not eliminate them,” Ezzell said.
The most common types of bankruptcy are Chapter 7, which wipes out all personal debts, although Ezzell said most people do not discharge all debts. Chapter 13, also personal bankruptcy, is a repayment plan, but Ezzell said usually less than 100 percent of debt is included.
“There are as many reasons for bankruptcy as there are people,” Ezzell said.
Chapter 11 is a business bankruptcy plan that involves reorganization. Those are growing rapidly, Ezzell said, and have a significant impact because of the people the businesses employ who are affected.
The top reason to take action is medical debt; however, divorces and job loss also are among the top three, he said. Sometimes there is more than one cause.
“There are people who commonly work for their salary, plus overtime, every week. In a bad economy, the company may cut back on overtime and people begin to get behind, creditors start calling and they get behind on their bills and soon have no alternatives,” Ezzell said.
Oklahoma is similar year to year and in the last couple of years has had fewer bankruptcies, he said. The most have been in states that experienced the real estate booms like Arizona, California and Nevada.
“Bankruptcies are not done by people who don’t want to pay their bills,” he said.
Ezzell works both sides, representing both banks and individuals. Most victims are in the financial shape they are because they tried to pay their bills and have exhausted all resources. Financial problems are the leading causes of divorce. If financial problems are resolved, sometimes marriages also can be resolved, Ezzell said.
Bankruptcy filings took a dramatic nose dive after a 2005 bankruptcy reform measure was signed into law to curb bankruptcy abuse and make it harder to erase debts.
But filings are surging back, in part because of rising job losses. The unemployment rate hit 10 percent this year.
Tighter credit, dwindling 401(k) accounts, smaller paychecks and less savings have left unemployed workers and those who are working but struggling with fewer financial resources. Most officials involved in bankruptcy seem to think 2010 will be higher than last year.
Craig Riffel, an Enid attorney, said the problems people had before the change in the bankruptcy law in 2005 still are there, only it is more difficult to file bankruptcy.
“Changing the act didn’t change the problems. That act was bought and paid for by the credit card companies,” Riffel said.
Riffel, who handles many bankruptcies, said they have increased because the problems that cause people to file bankruptcy still are present. He agreed with Ezzell that bankruptcies are not the result of people trying to beat the system.
“It typically is brought on by an event such as a divorce, illness and sometimes it’s just bad management. It’s not intentional, but they just ended up in that position,” he said.
People who deal with bankruptcies – attorneys, bankers, etc. – realize it is just a process and not people trying to beat the system, Riffel said.
Riffel did not know a No. 1 cause but said people get behind and think they will catch up, but the debt grows.
“People start robbing Peter to pay Paul, they get behind and think they will work harder, save more money, but it just doesn’t happen. Probably the No. 1 cause is either medical or adverse business or income position,” Riffel said.
Grant Price, court clerk of the U.S. Federal Court for the Western District, said bankruptcies were up 25 percent in 2009 over 2008. In 2009, the western district, which basically is Oklahoma from Interstate 35 and west, showed a total of 7,397 bankruptcies in 2009. That is compared to 5,955 in 2008.
Those bankruptcies totaled 5,665 Chapter 7 individual, 50 Chapter 11 business reorganizations, eight Chapter 12 agriculture bankruptcies and 1,674 Chapter 13 bankruptcies.
In Garfield County in 2008 there were a total of 143 bankruptcies. Those included 129 Chapter 7; one Chapter 12; and 13 Chapter 13 bankruptcies.
In 2009 there were 157 bankruptcies recorded in Garfield County. Those included 142 Chapter 7; and 15 Chapter 13 bankruptcies.
“I expect more in 2010 than last year,” Price said.
The reasons are many and varied for bankruptcies.
“Sometimes they just mess up or have a job loss,” he said.
Price said the majority of people don’t want to go bankrupt, but people have bad luck and misfortune. They try not to file, but eventually they have to. However, he admitted there are some who simply do not want to pay their bills and use the system.