With three months to go in the year, northwest Ohioans have earned the dubious distinction of filing the most bankruptcy petitions in a year in the history of the U.S. Bankruptcy Court in Toledo.
Experts say the situation likely will not improve soon as the economy continues to slow and job layoffs mount after the Sept. 11 terrorist attacks on the East Coast.
“It's probably going to get worse over a good part of the next year,” said Kenneth Mayland, president of ClearView Economics in suburban Cleveland.
Widespread credit availability, people spending beyond their income, layoffs or reduced work hours, and pending reforms in the bankruptcy law that would make it tougher to file have all contributed the record filings, said bankruptcy officials and credit counselors. The jump in local cases, however, seems to have eclipsed increases experienced elsewhere.
“We're up much more dramatically than I thought we were going to be,” said David Fickel, clerk of the local bankruptcy court. If the same level of new cases continues, 8,000 cases will be opened this year, or 2,300 more than the prior record, he added.
Until this year, the court never had more than 600 cases filed in a month. Filings in five of the nine months this year surpassed the figure, and two months' case filings exceeded 800. The norm the last few years has been 300 to 500 cases a month. Last month, for example, the court received 577 cases, up from 472 a year ago.
“There have been a lot of layoffs, a lot of changes in work schedules, and reductions in hours, so you have a debtor population that, if not unemployed, its income has been going down and that may have forced a lot of these filing decisions,” Mr. Fickel said.
Nationwide, bankruptcy cases were up 21 percent for the first half of the year and are expected to set a record.
Pending reform legislation in Congress likely drove some people to file for bankruptcy protection this year, but most did so because they cannot withstand a job loss or medical emergency because of the amount of debts they are carrying, said Sam Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va.
Growth of credit took a huge jump this year, up 10 percent, or more than double its past annual average, which likely contributed to rising bankruptcy filings, said Mr. Mayland of ClearView Economics. Nationally, late credit card payments soared in the second quarter of the year compared with the year before and were the highest in at least 20 years, according to the American Bankers Association.
Spending over one's income has been encouraged by businesses. One recent local car dealer's advertisement, for example, told shoppers they could buy a car “even with no credit, credit problems, bankruptcy, repos, or if you are a first time car buyer.”
Loans to such people typically have high interest rates, further stacking up debt on financially troubled people, Mr. Gerdano said.
Nearly all of the local filings this year are by individuals. Most people have filed either under Chapter 7 liquidation, in which debts are erased, or Chapter 13, in which a repayment plan is imposed. The Chapter 7 cases are up 50 percent over the same period a year ago.
The record-breaking case was filed Sept. 13 and ironically was a Chapter 7 business liquidation, Mr. Fickel said.. It was filed by Susan's Breads, Inc., a Findlay franchisee of Great Harvest Bread Co.
Richard Call, executive director of the Consumer Counseling Credit Service of Northwestern Ohio, has urged people running behind on payments to seek help from mortgage lenders or a company like his before they are laid off. Once a family's income is cut off, it makes it difficult for his firm to arrange payment schedules that a creditor will accept, he said.
Still, he said, filing bankruptcy should be a last resort.