CREDIT CORNER

Bankruptcies soar 21% in Colorado

Faltering economy, pending rules blamed

 

 

A teetering Colorado economy is beating a path to Denver's US Bankruptcy Court with the state's first boom crop of bankruptcy filings since 1997.

 

With December still uncounted, Colorado bankruptcy filings in 2001 have jumped to 18,900 -- a 21% increase over the like period a year ago and already 1,845 more cases than in all of 2000.

 

Chapter 7 bankruptcy petitions, the most popular route for individual debtors seeking relief, are up nearly 25%.

 

Brad Bolton, clerk of the bankruptcy court in Denver, said bankruptcies in 2001 will come close to reaching the all-time high of 19,075 filings in 1997, but won't break it.

 

Since the 1997 high-water mark for personal and business bankruptcies, annual bankruptcy filings has shown steady declines, Bolton said.

 

Nationally, bankruptcy filings also are up -- about 14% for the federal fiscal year 2001 ended Sept. 30, marking the first fiscal rise in 2 years.

 

In Colorado, bankruptcy attorneys and court officials said the jump in petitions is a reflection of the state's faltering economy and record number of job layoffs.

 

"There's a ripple effect," said Howard Tallman, US Trustee for Colorado, Utah and Wyoming.  "Companies start laying off people, shutting down operations or selling off their divisions.  And as companies go down, individuals follow.  It feeds on itself."

 

Also fueling the increase in filings, say bankruptcy experts, is pending bankruptcy reform legislation designed to force consumers to pay off more of their debt.  The threat of tighter bankruptcy standards spurred some debtors to file earlier in 2001, said John Nicholls, a Denver bankruptcy trustee.

 

"I actually think the fear of Congress passing a new bankruptcy act that would lessen the rights of debtors caused the initial flurry of filings this year, and not the economy itself," Nicholls said.  "Lawyers were advising their clients to file."

 

After intense lobbying from banks and credit card companies, both houses of Congress approved new rules making it harder for consumers to seek Chapter 7 relief, which wipes out most debts.

 

Instead, consumers would be directed to a Chapter 13, a minimum three-year bankruptcy process in which filers must come up with a plan to pay part or all of their bills.  The proposed legislation, however, has been stalled in conference committee, making it unlikely for any bankruptcy reform this year.

 

Harvey Sender, a Denver bankruptcy trustee since the mid-1980's, said the worst probably isn't over in Colorado, where the local economy ran relatively strong the first half of 2001, despite a national recession that economic experts say began in March.

 

If experience is any quite, Sender predicts a jump in overall filings in 2002 as well.

 

"The difference between this time and three or four years ago is substantial," he said.  "Clearly, the number of filings are up and the frequency of filings.  And there are adjust a lot more people, businesses and companies contacting be about potential filings."

 

Retail-related business bankruptcy petitions are likely to dominate first-quarter filings, he said.

 

"Any number of retail operations will hold on through the Christmas season, hoping they'll do enough business to carry them forward," Sender said.  "The business you're going to see filing (for bankruptcy) first are the ones that probably didn't hit the Christmas expectations they needed to get out of the hole they already were in."

 

Business bankruptcies filed under all chapters were up 23% for the first 11 months of the year, with 423 filings as of Nov. 30, according to the bankruptcy court.

 

Chapter 11 petitions, in which business reorganize their finances and sell all or a portion of their assets to pay off creditors, were up 30%, with 95 filings.

 

The only bankruptcy sector that didn't show a spike is Chapter 13.  Those petitions were down 1.4%, with 2,158 new cases through Nov. 30.

 

Bankruptcy trustee Sally Zeman, who oversees all of Colorado's Chapter 13 cases, credits the pending bankruptcy reform legislation for keeping her caseload flat.

 

"I think attorneys representing debtors advised a lot of their clients to get into a Chapter 7 because it's quick and it's a sure thing," Zeman said.  "With a Chapter 13, debtors are looking at three to five years to get their discharge.  It's still a powerful tool, but the success rate is 40% ... and for a lot of debtors, the new legislation would have provided them with little or no relief."

 

Though it's the multimillion-dollar bankruptcies that make headlines, most Coloradoans going through personal bankruptcy don't own their own homes or have assets to pay off $25,000 in accumulated debt, Nicholls said.

 

"Ninety-five percent of them are people who are down and out, have lost their jobs or had a bad streak of luck that has put them under," he said.

 

 

 

- John Accola, Rocky Mountain News