January 19, 2008 in Business

Bankruptcies on rise in region

By The Spokesman-Review
 

Bankruptcy filings almost doubled in North Idaho last year and climbed 27 percent in Eastern Washington, but a stampede to the courthouses in late 2005 skews the comparisons, attorneys said Friday.

The U.S. Bankruptcy Court office in Coeur d’Alene recorded 427 filings in 2007, up from 219 the previous year. The bulk of those were Chapter 7 cases in which individual or business assets are sold off, and the proceeds distributed to creditors.

In Eastern Washington, filings of all types increased to 4,270 from 3,350. All but 17 of those cases were Chapter 7 or Chapter 13, which puts more of a burden on those filers with some means to repay more of their debt.

Individual bankruptcies rose 40 percent nationally in 2007, to just over 800,000.

Even at 4,270, filings in Eastern Washington were far below the numbers recorded from 1998 to 2005, when totals varied from 7,787 in 1999 to a peak of 11,506 in 2005. That was the year a major overhaul of federal bankruptcy laws made it much harder for individuals to walk away from their financial obligations by filing a Chapter 7.

Debtors and their attorneys packed clerk offices up to the Oct. 17 deadline for filing under the old law. Almost none were filed for weeks afterward.

Many debtors, said Spokane attorney Ian Ledlin, were under the misimpression they could not file bankruptcy at all.

Ledlin, treasurer and past president of the Bankruptcy Bar Association for the Eastern District of Washington, said it also took some time for lawyers to adjust to the new laws and figure out how clients could get some measure of debt relief.

“Bankruptcy is still an option,” he said. “The new bankruptcy law did not put any more money in people’s pockets.

“They still have the same problems.”

Ford Elsaesser, the Sandpoint-based former president of the American Bankruptcy Institute, said North Idaho filings also were much higher before 2006. He foresees another increase in filings this year, but doubts the pace will be anything like that in some parts of the country where local economies have faltered.

Many with debt have been trapped by the soft housing market, he said.

When prices were appreciating, even those who filed bankruptcy were able to refinance and keep their home. Now, Elsaesser said, decreasing prices in some areas have homeowners under water. With banks restricting credit, many debtors have nowhere to turn.

“That’s definitely a trend,” he said, adding that enlightened creditors are working with hard-pressed homeowners rather than pushing them into foreclosure.

Farm owners are in much better shape. Elsaesser, who acts as trustee in all farm bankruptcy cases from the Montana border west to the Cascade Mountains, said he has not handled a new case since last spring, and only two small ones in the last year. A typical year used to bring eight to 10 filings, he said.

“That’s the really bright spot, across the board,” Elsaesser said.

Also, there were only 15 Chapter 11 bankruptcies filed by businesses in Eastern Washington. That was the lowest total going back 10 years.


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