by Karen Brune Mathis, Daily Record Managing Editor
Consumers and businesses are filing for bankruptcy at the slowest pace since 2008 in Jacksonville and in the Middle District of Florida.
Filings in the 16-county Jacksonville Division peaked at an average of 953 a month in 2010 and have fallen to 721, based on January-September statistics.
That’s an average of 232 fewer filings a month.
“These numbers are not surprising,” said Jacksonville Bankruptcy Bar Association Chairman Mark Mitchell. “They reflect the current status or trend of our economic recovery.”
Mitchell, a shareholder with the Rogers Towers firm, said unemployment rates have fallen below 10 percent.
Reports show that the rate is below 10 percent in the county, metropolitan area, state and nation.
If filings remain at the pace of the first nine months, bankruptcy filings could end 2012 in Jacksonville at 8,657, the lowest since 2008 and 24 percent below the record nine-month total of 11,439 in 2010.
Districtwide, the nine-month filings of 35,523 are the lowest since 2008 and 31 percent below the record 51,232 in 2010.
If filings remain at the current rate, the district could end the year with 47,364 filings – again, the lowest since 2008 and 29 percent below the record of 66,618 in 2010.
Lawyer Ed Jackson, a director of the association, said unemployment has fallen and Florida house values have increased slightly, citing a Zillow.com report that values rose from average of $123,000 in August 2011 to $126,000 in August this year. Zillow.com is an online real estate marketplace.
“Although the economy is recovering slowly, it appears to be recovering. The bankruptcy statistics are a reflection of the recovering economy,” said Jackson, of the Edward P. Jackson, P.A., practice.
Bankruptcies soared to record levels in 2010 as the national, state and local economies struggled through what has been called the deepest recession since the Great Depression.
The U.S. recession began in December 2007 and emerged more than three years ago, in June 2009, although Florida’s downturn is widely viewed to have lasted until at least early 2010.
Florida’s economic dependence on housing and tourism, both hit hard by the recession, led to ongoing sluggishness around the state.
As the Daily Record has reported, U.S. Bankruptcy Judge Paul Glenn in the Middle District Jacksonville Division said last year that as the recession began in late 2007, the court saw filings by real-estate petitioners, such as construction companies, subcontractors, developers and related entities.
Then small businesses began filing, followed by more individuals who were invested in real estate and could no longer carry the debt because they couldn’t sell the properties or make enough rental income from them.
Records show economy hotels then began filing, as well as restaurants and other businesses.
“From the standpoint of jobs, it makes sense that bankruptcy filings are down compared to the years immediately following the financial crisis. But there are additional factors in play,” Mitchell said.
Mitchell said residential and commercial real estate markets continue to struggle as a whole.
“In my opinion, this is perhaps the most significant impediment to a faster and more robust recovery. Unfortunately, this is going to take time,” he said.
“There remains a backlog of foreclosures, particularly foreclosure actions that have been filed but not yet complete,” he said.
The Middle District of Florida encompasses 35 of the state’s 67 counties and covers the major metropolitan areas of Jacksonville, Orlando, Daytona, Tampa and Fort Myers.
The Jacksonville Division covers the 16 North Florida counties of Baker, Bradford, Citrus, Clay, Columbia, Duval, Flagler, Hamilton, Marion, Nassau, Putnam, St. Johns, Sumter, Suwanee, Union and Volusia.
Three-quarters of the way into the year, the number of district bankruptcy filings has fallen almost 15 percent from last year and fell almost 31 percent from 2010.
In the Jacksonville Division, filings are almost 12 percent below last year and down almost 27 percent from 2010.
Among the Middle District filings for the first nine months of the year compared with the record in 2010:
• Chapter 7 liquidations were down 32 percent, while accounting for about 73 percent of all filings, a lower proportion than the almost 75 percent in 2010. Businesses and individuals use Chapter 7.
• Chapter 11 reorganizations fell about 35 percent this year from 2010. While dominated by businesses, high-wealth individuals also seek protection under the chapter.
• Chapter 13 wage-earner repayment plan filings were down 25 percent and accounted for 26 percent of all filings, a higher proportion than 24 percent in 2010.
Lawyers expect the pace of bankruptcy fillings to remain high, but not at a record rate.
“While things are improving, albeit more slowly than many would like, we are still in a state of recovery, and I suspect that bankruptcy filings will continue at an above-average pace for the near future, though not at the levels of 2009 and 2010,” said Mitchell.
Ellsworth Summers, president of the bankruptcy bar association, expects the pace to pick up during the current fourth quarter of the year or the first quarter of 2013.
Summers said an increase in residential foreclosure filings in the third quarter could lead to an increase in bankruptcy filings.
“As we know, the bankruptcy filings are tied directly to the foreclosure filings, and if the foreclosure filings are up in the third quarter, then there will be a subsequent bump in bankruptcy filings within a few months,” he said.
Summers, a shareholder at Rogers Towers, said the filing of foreclosure lawsuits slowed the past six months for two reasons — issues with the “robosigning” by lenders and the delay in the opening of the Duval County Courthouse.
The old courthouse closed May 18 and the new courthouse was scheduled to open May 29 but was delayed to June 18, which affected the filing of lawsuits.
Also, Summers said the five-year loans made in 2007, as the recession was beginning, are coming due, as are loan modifications made in 2009-11.
“If these loans go into default, there will be a whole new batch of defaulted loans that will require lenders to take legal action,” Summers said.
“I would anticipate that increased foreclosure lawsuits will result in an increased number of bankruptcy cases filed,” he said.
St. Augustine-based bankruptcy lawyer Nina LaFleur said fewer bankruptcy filings, nationwide as well as locally, might seem to signal an economic recovery.
“On the surface, it may seem that the lack of bankruptcy filings would be a signal of economic recovery, but some say those numbers actually signal the economy is worsening,” she said.
“In Florida, we still have an artificial slowdown of the foreclosure process, which was rampant with defective foreclosure suits and shoddy work done by foreclosure law firms resulting in a decrease of resulting bankruptcy filings,” said LaFleur, a director of the association.
“There are still thousands of foreclosures yet to be filed so we will see those bankruptcy filings eventually,” she said.
LaFleur, who operates the LaFleur Law Firm, said the firm has many clients who haven’t made mortgage payments in two to three years and a foreclosure hasn’t been filed yet.
“As the foreclosure filings pick up speed, so will the bankruptcy filings,” she said.
LaFleur cited other factors, including the possibility of federal spending cuts that could affect the judicial system and federal courts, “so we may face many challenges in the coming year.”