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Brace for surge in bankruptcies
By KRIS HUNDLEY
© St. Petersburg Times, After rising dramatically through the first eight months of the year, Tampa Bay area bankruptcy filings declined in September. But area attorneys say they wouldn't be surprised to see another surge by spring, as the impact of the Sept. 11 terrorist attacks filters through the economy. "Bankruptcy lags six months to two years behind an event," said William Zewadski, a lawyer with Trenam Kemker in Tampa. "We're not seeing a direct connection to Sept. 11 yet because people first exhaust their resources. But as the economy is affected, especially in Florida, there will be some fallout. And we were already on line to hit a record year." Bankruptcy filings nationwide are expected to surpass 1.6-million this year. That compares with 1.4-million cases filed in 1998, a record year. For the quarter ended June 30, filings nationwide rose 24.5 percent, the highest three-month rise ever. Though Florida's Middle District of U.S. Bankruptcy Court was not among those reporting the biggest jump in filings for the second quarter, the Tampa bankruptcy court has long been one of the busiest in the nation, second only to Los Angeles. For the first nine months of the year, bankruptcy filings in the Tampa-Fort Myers division were up 20.2 percent over the same period a year ago. Through September, the division processed 18,234 filings. Of those, the majority, 12,885, were Chapter 7 liquidations filed on behalf of both consumers and corporations. Corporate reorganizations, under Chapter 11, totaled 114 for the period. Personal reorganizations under Chapter 13 accounted for 5,233. Yet in September filings in the Tampa-Fort Myers division were down 18 percent compared with August. Lawyers said one reason for the sudden drop might be that federal and attorneys' offices were closed immediately after the Sept. 11 attacks. Mike Markham, a Clearwater bankruptcy attorney, said creditors also may have taken a break from bill collecting. "You could argue that creditors had better things to think about than pressuring people," Markham said. He noted that his credit card bill this month gives him an additional 10 days to pay. "Or maybe people in general had better things to worry about than filing bankruptcy." Nationally, Sept. 11 exacted some immediate corporate casualties. Midway Airlines, which filed to reorganize under Chapter 11 a month before the hijackings, decided to liquidate two days after the events. Renaissance Cruises also ceased operations rather than reorganize in the wake of the sudden downturn in tourist spending. But for thousands of employees and suppliers of Midway and Renaissance, any bankruptcy filings -- if they come -- are still months away. Local bankruptcy lawyers say credit card debt is the biggest factor that drives individuals into court, after job loss, divorce and catastrophic medical expense. Richard Feinberg, managing partner at the Debt Relief Legal Center in Tampa, said recent statistics that show credit card delinquency at an all-time high as of midyear give him pause. "That's one of the primary indications as to what the bankruptcy statistics are going to look like over the next six months," said Feinberg, adding his company's practice is up 35 percent year to date. "I can't imagine how high it's going to go." Individual bankruptcy filings also were given a boost earlier this year as people sought to qualify for Chapter 7 liquidation status before passage of a law tightening the standards. Though the House and Senate have passed versions of such a bill, which would require more people to repay their debts rather than have them dissolved, a compromise has not come out of a conference committee. Some lawyers said Congress is unlikely to have either time or interest in pursuing bankruptcy reform. "There's been some talk in Congress that with times as hard as they're likely to be, they don't want to shut the door to bankruptcy," Zewadski said. "So that legislation, which has died in two previous sessions, could die again." While the pressure of pending legislative changes may be gone, few expect the decline in filings to continue in a weak economy. Attorney Markham said he's spoken to several commercial clients, including a gas station owner in Orlando, who wonder if they're going to make it to the end of the year. "I think the next six months will be filled with lots of activity and negotiation," he said. "A lot depends on how cooperative lenders and creditors are willing to be. Bigger, more institutional lenders may be careful from a marketing standpoint of turning the screws at a difficult time." One likely scenario for flailing corporations is a trend lawyers say has accelerated this year: businesses filing Chapter 11 with an eye toward orderly liquidation, rather than reorganization. But it will take months for the full impact of the economic downturn, sharpened by the events of Sept. 11, to be felt. "If 30 days killed you, you were almost already dead," Markham said, referring to the month since the attacks. "Now there's a lot more sickness out there. We'll see who it kills and who's going to get well." -- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.
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From the Times Business report
From the AP
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