Blog sponsored by Bankrupt-Law.com


Posted on Sun, Jul. 30, 2006

Bankruptcies rising?

Bankruptcy storm may be brewing
Study looks at filing rates after hurricanes
By MIKE KELLER
mkeller@sunherald.com
The true financial fallout from Hurricane Katrina may be looming just over
the horizon and it is waiting to swallow increased numbers of businesses and
people, a recent study suggests.
The study of bankruptcy filing rates after major hurricanes showed those
states directly affected averaged 50 percent more bankruptcies than those
not hit.
Robert Lawless, the professor and lawyer at the University of Illinois
College of Law who wrote the study, said the increases in filings were most
dramatic between one and three years after the hurricanes.
"Although (Katrina victims') financial resources were gone, past debts
remained, and new obligations arrived," Lawless wrote in the study,
published in the Nevada Law Journal. "While trying to build a new life,
Hurricane Katrina's victims still had to contend with the obligations of a
previous one."
Lawless looked at 18 U.S. hurricanes that came ashore between 1980 and 2004
and caused more than $1 billion in damages.
Among the list of hurricanes analyzed, Hurricane Elena, which hit
Mississippi in September 1985, did the most damage in terms of increasing
bankruptcy filings. Three years after that storm came ashore, 72 percent
more Mississippians filed for bankruptcy than in other states.
Lawless said that Mississippi would see similar results from Katrina, though
the numbers would not be as apparent because of the nature of the
destruction.
"I think from Katrina you won't see the same bump in bankruptcy numbers from
the local area like I saw in my data," Lawless said. "You will see increased
filings but they will be spread out throughout the country because you have
so many displaced people."
Kathy Landry, the deputy in charge of the U.S. bankruptcy court for the
Southern District of Mississippi, said the numbers of bankruptcy filings
would also be lower than expected because people believe the new law- in
effect since October 2005- prevents them from seeking protection from
creditors.
"In Mississippi, we do qualify because we don't make a lot of money down
here," Landry said.
She expects filings to rise when people begin to realize that bankruptcy is
still an option for extreme financial distress.
William Wessler, a Gulfport consumer bankruptcy lawyer, said local filings
were definitely lower than the rest of the state right now. He attributed
the decrease to the short-term flood of money from FEMA and insurance along
with the perception that the new law prevented many people from filing.
Another, more immediate sign that South Mississippians may be in financial
trouble is the number of homeowners late on their mortgage payments.
A report of payments more than 30 days late from the Mortgage Bankers
Association by bankrate.com showed that Louisiana's 14 percent,
Mississippi's 13 percent and Alabama's 6.5 percent of borrowers make those
states the most delinquent in America.
Those numbers may be a harbinger for the deeper financial problems that
Lawless found.
"Based on the findings from after Hurricane Elena, logic would dictate that
we are in for the biggest increase in filings ever," Wessler said. "We just
haven't seen it yet."
On the Web
Professor Robert Lawless' blog on credit and bankruptcy: www.creditslips.org
For bankruptcy court locations and approved credit counseling agencies:
www.uscourts.gov/bankruptcycourts.html



Seeking shelter
Bankruptcy filings in Mississippi, from Hattiesburg south to the Coast:


YearJan. 1- July 21Whole year
20043,3115,818
20053,2426,028
20062,195NA
Note: New federal legislation governing bankruptcy went into effect in
October 2005. Katrina struck four months later, scattering Coast residents
throughout the country and further driving down bankruptcy filings.

- U.S. BANKRUPTCY COURT