Federal regulations aimed at making it harder to erase consumer debt went into effect last fall, and the number of bankruptcy filings in Arizona and the Valley have dropped sharply this year.
Across Arizona, 4,025 bankruptcy cases were filed through August, compared with 22,674 for the first eight months of 2005. That includes 3,161 Chapter 7 filings compared with 19,686 for the same period in 2005.
The vast majority of bankruptcy filings are individual consumers seeking protection from creditors.
Bankruptcy filings jumped during the months leading up to the new regulations that took effect Oct. 17. Since then, filings have lagged far behind recent years.
“It’s obviously not at the filing level we were certainly used to over many years before the new bankruptcy law,” said Terrence Miller, clerk of the U.S. Bankruptcy Court of Arizona. “As far as whether this is going to be our new reality or not, we’re going to have to see how things develop over time.
Bankruptcy filings are a trailing indicator of the economy, the overall economy and the health of it. We have a soft real estate market and although gas prices have dropped, those impacts on people’s income are still there and the reasons why people file are still there.”
Chapter 7 is strictly liquidation, while Chapter 13 includes at least some repayment. Through August, 766 Chapter 13 cases have been filed statewide, compared to 2,883 for the same period in 2005.
“I think eventually filings will go up, but to what level we’re just not sure,” Miller said. “It may be a gradual increase, but historically there have been spikes in bankruptcy filings that typically trail recessions and things that happen in the economy, but it takes a while for it to hit bankruptcy court.”
Anthony Clark, a bankruptcy attorney with offices in Mesa and Phoenix, said his volume has continued falling since the regulations took effect.
“We’re probably doing about 20 percent of the average volume for the last 10 years here in Phoenix, and many districts are experiencing the same,” he said.
“All the thousands of people who filed their cases in the third quarter of last year, many of those people were sort of pre-emptive. They were filing because they thought they might be in trouble and the effect was to diminish the otherwise ordinary cycle of insolvency.”
Clark said there is a direct correlation between the normal filing volume and unemployment.
“I looked at unemployment figures for the 10-year period leading to 2005 and I looked at bankruptcy filings, and there is nearly a one-in-10 correlation,” he said. “If there’s 150,000 people applying for unemployment compensation, there are 1,500 people filing bankruptcy. That’s a very tight statistical trend.”
There is a perception that the new regulations either eliminated bankruptcy as an option or made filing a lot more difficult, “which is not really the case,” Miller said.