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Bankruptcy filings down in 2011

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Throughout Indiana, bankruptcy filings fell last year as compared to 2010 – filings in the Indianapolis area fell 17 percent last year, more than in the nation as a whole – but attorneys don’t see an improving economy in those figures.

They say the decline was driven more by stalled foreclosure proceedings.

“The drop in mortgage foreclosures and sales definitely impacted filings,” said John Petr, an attorney at Kroger Gardis & Regas and a Chapter 7 trustee for the U.S. Bankruptcy Court for the Southern District of Indiana. “That deadline to stay in the home wasn’t there.”

There were 22,754 cases filed in the Southern District in 2011, compared with 27,394 the prior year. The district encompasses the southern two-thirds of the state and has offices in Terre Haute, New Albany and Indianapolis, where most of the cases were filed.

The caseload dipped below the 2008 level but remained higher than 2007, the last year before the recession, when 18,733 cases were filed.

It appears the number of filings has also declined in the northern part of the state. Through November 2011, 14,483 cases were filed in the Northern District of Indiana – which has divisions in Fort Wayne, Hammond and South Bend. In 2010, the Northern District had 18,286 case filings, according to its website. December figures weren’t available from the Northern District as of IL deadline.

Nationwide, bankruptcy filings declined 12 percent, to 1.38 million, the American Bankruptcy Institute in Alexandria, Va., reported.
bankruptcy
Banks halted foreclosures last year after they were caught processing earlier cases illegally – the so-called “robo-signing” controversy. The still-depressed housing market is an added incentive for banks to hold off on foreclosures, instead of adding more vacant houses to their portfolios.

Attorneys said they expect filings to rise this year, as banks start to push through foreclosures again.

“The pipeline of cases I have is probably bigger than it’s ever been,” Noblesville-based bankruptcy attorney Jonathan Brown said.

Mark Zuckerberg, who has the largest personal bankruptcy practice in Indiana, thinks attorneys will begin to see consumers who walked away from houses that are worth less than the outstanding debt. Even after selling an “underwater” house, banks want to collect the difference from someone, Zuckerberg said.

He thinks many Hoosiers are avoiding bankruptcy because they’ve given up hope. With no jobs or savings, they see no assets worth protecting when creditors come knocking.

“You ever heard the phrase, ‘You can’t get blood from a turnip?’” Zuckerberg said. “A lot of these people are turnips, and there’s nothing that can be done to them.”

Another factor in the decline is a reduction in household debt, said Samuel Gerdano, executive director of the American Bankruptcy Institute. He said consumers are spending less and have less access to credit.

The most common form of bankruptcy filing is Chapter 7, which is used by both consumers and business owners to erase debt and start fresh, followed by Chapter 13, in which a debtor sets up a repayment plan.

Large businesses typically reorganize under Chapter 11.

Nationally, business filings fell further than consumer filings, the American Bankruptcy Institute said. Using data provided by Epiq Systems Inc., ABI reported a 19-percent decline in business filings, which included both Chapter 11 and Chapter 7, versus an 11-percent drop for consumers.

Data from the Southern District of Indiana showed a similar trend. There were 84 Chapter 11 filings last year, down 26 percent from 115 in 2010. In 2010, the Northern District reported 64 Chapter 11 filings; through November 2011, there were just 30.

Henry Efroymson, chairman of the bankruptcy practice group at Ice Miller, said many of his business clients are beginning to see better times after suffering since 2007.

Another factor, he said, is, “There is a lot of forbearance activity going on,” as lenders hope they’ll be repaid once the economy improves.

Jim Carlberg, chairman of the Bankruptcy and Creditors’ Rights Group at Bose McKinney & Evans, doesn’t think the economy is improving fast enough to help most businesses.

After three years of dealing with commercial real estate, he expects to see other types of businesses in court this year.

“I think it could run the gamut of retail, manufacturing, distribution, everything other than real estate,” Carlberg said.

Many small businesses that were vulnerable to the recession succumbed to Chapter 7 in 2009 or 2010, which partly explains the decline last year, Petr said.

Even in a thriving economy, bankruptcy is a steady practice because the “big three” — divorce, medical bills and unemployment — never disappear, said Brown, the Noblesville bankruptcy attorney.

Medical bills were what tripped up a McCordsville couple Brown represented at a creditors’ hearing this month. Though the couple, who did not want to be named, had a pension, medical benefits and part-time jobs, they underwent surgeries with huge out-of-pocket expenses.

The problem compounded because they paid the bills with high-interest credit cards, the husband said. “We’ve always paid the minimum amount. We just got into a rut.”•

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This story originally ran in the Jan. 16-22, 2012, issue of Indianapolis Business Journal.
 

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  1. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  2. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  3. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

  4. Justice has finally been served. So glad that Dr. Ley can finally sleep peacefully at night knowing the truth has finally come to the surface.

  5. While this right is guaranteed by our Constitution, it has in recent years been hampered by insurance companies, i.e.; the practice of the plaintiff's own insurance company intervening in an action and filing a lien against any proceeds paid to their insured. In essence, causing an additional financial hurdle for a plaintiff to overcome at trial in terms of overall award. In a very real sense an injured party in exercise of their right to trial by jury may be the only party in a cause that would end up with zero compensation.

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