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Rise of Bankruptcy Rate in Region Outpaces Rest of Nation

By PATRICK McGEEHAN
Published: December 15, 2008
http://www.nytimes.com/2008/12/16/nyregion/16bankruptcy.html?th&emc=th 

Bankruptcy filings are accelerating in the New York metropolitan area at a faster pace than in the rest of the nation, according to figures released on Monday by the federal bankruptcy courts.

In the federal courts that serve the region, filings for bankruptcy protection — by individuals and businesses — were pouring in at the rate of about 175 per day in the three-month period that ended Sept. 30, the data showed. The filings in the city, New Jersey and Connecticut increased by more than 36 percent in the quarter, faster than the nationwide increase of 34 percent.

The statistics show that the rising tide of American bankruptcies that had already reached the surrounding areas of New Jersey and Connecticut has now rolled into the city. As unemployment rises, more consumers are falling behind on their debts and creditors have been increasing pressure on them to repay, bankruptcy lawyers said.

“We are seeing debt-collection efforts really being ratcheted up over the last couple of months,” said Jay S. Fleischman, a bankruptcy lawyer in Park Slope, Brooklyn. “What we’re seeing is the debts being sued upon far earlier in the process. That leaves consumers with the feeling that they don’t have the options they once did.”

Rather than seeking to work out repayment terms with the lenders or through credit counselors, more borrowers are filing for court protection from their creditors, Mr. Fleischman said. “Our clients now tend to be people who had better-paying jobs. More of the middle class and upper-middle class is being forced to consider this option as a result of job losses and the erosion of home values.”

The two federal courts in the city — one in Manhattan and one in Brooklyn — recorded about 36 percent more filings in the third quarter of 2008 than in the same period last year. In the second quarter, filings in those courts rose about 30 percent, slower than the nationwide pace.

As usual, the bulk of the filings were made by individuals under Chapter 7 of the federal bankruptcy code, known as liquidations. For example, in the Eastern District Court in Brooklyn, nearly 75 percent of the 4,323 bankruptcy filings were personal Chapter 7 liquidations, while just 126, or 3 percent, of the filings were by businesses.

In Southern District Court in Manhattan, business filings made up about 8 percent of the 2,641 filings in the third quarter. But filings by businesses looking to reorganize their debts were rising at a fast rate, up about 45 percent in the quarter, compared with the same quarter of 2007. Among the biggest filings in the quarter were those of Lehman Brothers, the failed investment bank, and Steve & Barry’s, a chain of discount clothing stores.

Bankruptcies among businesses are likely to continue piling up for months, said Michael P. Richman, chairman of the bankruptcy practice group in the Manhattan office of Foley & Lardner, a law firm.

“A lot of us in the profession believe that once we get through the Christmas and holiday shopping season, that there will be a literal wave of new Chapter 11 cases, largely in the retail arena,” Mr. Richman said. “We’re going to see a continued increase on a regular basis for a long period of time, a period of time that’s going to outlast the recession, I think, for years.”

In the federal courts in New Jersey and Connecticut, bankruptcy filings rose at a slightly faster pace than in the two New York City courts in the last quarter. In New Jersey, there were 6,874 filings, up from 5,036 in the third quarter of 2007; there were 6,696 filings in the second quarter of this year. In Connecticut, the total number of filings in the third quarter — 2,119 — was up 37 percent from a year before, but was slightly lower than in the second quarter of this year.

The Southern District handles cases from Manhattan, the Bronx, Westchester and a few other counties north of the city. The Eastern District handles cases from Brooklyn, Queens, Staten Island and Long Island. Outside the metropolitan region, the state is divided between the northern and western districts, where bankruptcy filings rose at about half the pace of filings in the metropolitan region.
 

 

 

 

 
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