Articles Posted in Statistics

Sacramento Metropolitan Area residents who have considered filing for Chapter 7 or Chapter 13 bankruptcy due to too much debt may be curious to know that U.S. courts have seen an exponential increase in law suits filed by debt collection agencies against individual debtors over recent months. Many people may not be surprised that these types of lawsuits have increased during the current economic situation. However, what any debtor should be aware of is that many of these lawsuits are being filed automatically.

The New York Times published an article today that shows Debt Collection agencies have responded to the growing number of credit defaults by using computerized software that files the legal paperwork electronically and almost without any human involvement. This software generates letters, court documents, and legal pleadings on behalf of the debt collection agency. Debt collectors hope to receive up to 50 cents on the dollar owed by getting a court judgment against the debtor and then garnishing the debtor’s wages or property. The leading debt collection firm in New York has been filing approximately 80,000 lawsuits a year in this manner.

Critics of this practice already note the lack of human oversight allows these cases to be filed improperly and/or without the correct debt amounts. Others suggest that these practices are subject to abuse. Often times the collection agencies entire case is based solely on a debtor’s address, name, and alleged balance owed. Since debtors often fail to show up in court to defend against the action, the collection agency receives a default judgment and there is little a debtor can do to challenge the amounts awarded by the court after judgment has been entered. “It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.

The Sacramento bankruptcy attorneys at the Law Offices of Matthew D. Roy routinely keep track of bankruptcy filing statistics across the United States. The Real Time Economics Blog reported on July 2 that bankruptcy filings in 2010 have surpassed the record number bankruptcy cases filed in 2005. 2005 saw a record number of bankruptcy filings due to the bankruptcy reform laws passed by Congress. Nonetheless, economists and bankruptcy experts alike have steadily projected that filing rates will meet or even surpass the record numbers seen in 2005, when many debtors scrambled to beat the deadline before more stringent guidelines came into effect, and it appears that they are correct.

As we are well aware, however, the United States in currently embattled in the worst economic downturn since the Great Depression. Statistics show there were 770,117 bankruptcy filings in the country for the first 6 months of this year. That is a fourteen percent increase over the numbers provided in the first part of 2009. The American Bankruptcy Institute predicts a total of 1.6 Million filings for the entire year.

While June seems to have experienced a lull in bankruptcy filings from May, which was the third consecutive month that saw a decrease in filings, these filings still remained 8 percent higher than June of last year. Columbia Professor of Law Ronald Mann conducted a study that shows that the highest bankruptcy filing rates in the country were in the southwest and southeast. Nevada alone saw 15,000 filings per million households, more than twice the national average. The National average of bankruptcy filings is 6,800 filings per million households. Washington, D.C., South Carolina, and Alaska experienced the lowest filing rates across the nation. States in the southeast typically see the highest amount of filings across the Nation, however, Tennessee and Alabama appear to have experienced reductions in these rates.

As a Sacramento Bankruptcy Attorney I often take interest in matters that affect my clients in the Sacramento metropolitan area. According to an article published today in the New York Times, homeowners across the nation are beginning to take advantage of the increasing delay between eviction and the implementation of the foreclosure process by a mortgagor. In the article “Owners Stop Paying Mortgages, and Stop Fretting” by David Streitfeld, the New York Times notes that financial institutions have begun the foreclosure process against 1.7 million households across the country. Even though this number sounds staggering, many homeowners have stayed in their homes far beyond the time typically allotted to the foreclosure process.

The average eviction time has increased from 251 to 438 days from the borrower’s original delinquency on the mortgage payments since 2008. While the foreclosure process has always remained a slow one, and in California takes approximately 3 months, the lag between a bank starting the entire process and the ultimate eviction of the homeowner has become an even longer. This increased time between foreclosure and eviction can be attributed to several barriers facing financial institutions in this current economic environment.

First, many borrowers have instituted legal challenges against the mortgagor in an attempt to void the lien entirely or avoid personal liability on the loan for violations that the lender may have committed when providing the loan. For example, The Truth in Lending Act (TILA) requires that lenders include specific language and disclosures in the documents they provide to borrowers upon origination of a loan. If a lender fails to provide these disclosures then the borrower cannot be held personally liable for any default on the property. This means a lender cannot sue a borrower for the difference between the loan amount and the foreclosure sale price. Second, some state and local governments have imposed moratoriums on foreclosure. Third, the federal government has begun to apply pressure to mortgage companies to offer loan modifications to distressed homeowners. Lastly, many of the lenders are severely backlogged with multiple foreclosures and delinquent borrowers that they just cannot get to the process until well after they would be permitted to proceed with eviction according to law.

According to the Wall Street Journal, California and Arizona are responsible for between 36%-46% of the year to date increases in consumer bankruptcy filings across the nation. While bankruptcy filings in April have been marginally lower than the filings from March, they still remain 15% above the statistics from April 2009. California, specifically, has seen a 40% jump in personal bankruptcy filings since this time last year.

144,490 people filed for personal bankruptcy in March throughout the entire United States. The Eastern District of California, the jurisdiction that oversees the bankruptcy process in the Sacramento area has seen approximately 32,000 Chapter 7 filings since January 1st alone. Economists predict that individual bankruptcy filings will top 1.5 million in 2010. This number exceeds the 1.4 million consumer bankruptcies filed in 2009, which has been the highest number of filings since Congress changed the bankruptcy laws in 2005. Congress reformed the system five years ago in order to reduce the number of bankruptcy filings by making it more difficult for individuals to qualify under Chapter 7.

If you or someone you know have been affected by the recent economic collapse and have considered filing for bankruptcy, you should take action now and discuss your financial situation with a Sacramento Bankruptcy Attorney.