Bankruptcy growth in U.S. slowed in '10, records show

RALEIGH -- The growth in bankruptcies around the country slowed significantly in 2010 from its breakneck pace in recent years, with about a dozen states recording a decline in filings from consumers and businesses.

Filings collected from the nation's 90 bankruptcy districts by Associated Press showed 113,000 bankruptcies in December, down 3 percent nationwide from the same month a year ago. That followed a similar year-over-year decline for the month of October. It had been four years since an individual month showed such an improvement.

That was in contrast to northwest Ohio filings, which rose 5 percent last year from the year before. The area had only three months in 2010 in which filings were higher than in the same month a year earlier, according to the U.S. Bankruptcy Court in Toledo. The 8,461 filings in 2010 were the sixth highest on record.

The nation recorded 1.55 million filings in 2010, an increase of 8 percent from 2009 and a far slower growth rate than the 32 percent jump recorded in the year before and the 33 percent jump the year before that.

Numbers indicated stark regional differences. Thirteen states, mainly in the South, recorded declines.

West Virginia led the way with a 10 percent drop in cases. The West, however, indicated ongoing growth in filings, with numbers rising in Hawaii (22 percent), Utah (19 percent), California (19 percent), and Arizona (18 percent).

Ohio had no change in cases last year from the year before.

Bankruptcy filings have had a volatile decade, with a surge to records highs in 2005 as filers rushed to make their claims before Congress overhauled the system. Lawmakers made bankruptcy filings more cumbersome -- and, as a result, more costly -- amid concerns that some consumers were taking advantage of the system to escape debts.

Immediately after the law changed, filings sank before steadily climbing again. Experts attributed the ongoing rise in part to an expected rebound after the shock of the 2005 law and in part because of consumers' financial conditions. The number of filings nationally in 2010 matched the tally for 2004 -- one of the highest-ever years before the spike attributed to the law-change.

"That is kind of the 'natural' level of filings in the kind of economy we have," said Katie Porter, a professor at the University of Iowa college of law. "We have a lot of debt and we have a lot of volatility. When you combine those things together, the debt makes it hard for people to withstand a shock to the system." Those shocks often are job losses or medical bills, she said.

The return of bankruptcy filings to their pre-2005 levels raises the question of what the changes accomplished. Ms. Porter said the law seems to have achieved little more than to raise the cost of filing for bankruptcy.

Bob Lawless, a professor at the University of Illinois college of law who tracks bankruptcy data, said the difficulty in accessing consumer credit in the past couple years may be helping limit the number of people overly burdened by debt. He expects filings to be slightly lower in 2011.