Central Mass. Bankruptcies Plunge
Wednesday, February 29, 2012
Chapter 11 protection, which permits financial reorganization according to U.S. bankruptcy laws, is available to businesses and individuals. However, individuals usually file for Chapter 13 or Chapter 7. A Chapter 11 filing involves a minimum level of debt that individuals generally do not carry.
While Chapter 11 and Chapter 13 filings both involve some sort of reorganization, Chapter 7 filings necessarily result in financial liquidation.
Total Bankruptcies Across Commonwealth Down
A review of the data reveals a downward trend in filings statewide. State totals are down 12% in Chapter 11 filings, 16% in Chapter 7 filings and 11% in Chapter 13 filings.
The annual case filings are broken into three districts—Eastern, Central and Western—and indicate almost across the board decreases, with the notable exception of Chapter 11 filings in the Western part of the state, up from 2 in 2010 to 9 in 2011.
This 15% combined drop in bankruptcy filings has some Commonwealth residents hopeful about the economy’s prospects in 2012 but experts are unconvinced.
Industry Experts Analysis The Numbers
Worcester bankruptcy attorney Wendy Mead sees no compelling reason for the precipitous 2011 decrease in bankruptcy filings.
“I believe that part of the decline is due to debtors, both businesses and consumers, becoming more comfortable with waiting longer periods before filing in the hopes of reaching resolutions with their creditors,” Mead said.
“Until the economy declined to its lowest state in late 2010,” Mead continued, “debtors were more inclined to file cases to avoid further issues with their creditors.
“However,” she added, “due to government programs, and creditors, in some cases, being more willing to work with debtors, many people and businesses attempt these alternatives rather than filing.”
Mead is careful to point out that corrective and reconciliatory measures like these are not a magic bullet. “In some cases,” she said, “a filing is still necessary.”
Creditors More Likely to Negotiate?
In her discussions with other area practitioners, Mead has found that no consensus has been reached as to the recent reduction in bankruptcy filings.
Some of Mead’s colleagues think that debtors and creditors, sensing slow economic growth, have lately been more amenable to hammering out arrangements rather than seeing bankruptcy as their only option.
Regardless of the reason, the downward trend has had little effect on Mead’s Worcester practice. Representing individuals, businesses and even some creditors gives her a uniquely holistic outlook on bankruptcy law.
Persuaded to offer her own opinion on the data, Mead said, “I really don't think that hesitancy to file is based on a hopeful perspective of the economy.”
According to Worcester-based financial planner Anne O’Brien, “The ‘bankruptcy response’ began shifting in late 2010 and I witnessed marked evidence of that shift in my practice during 2011.”
She added, “Many of my clients are now working hard to get their financial houses in order by taking control of their expenses and paying down debt. They are more rational now about their debt problems than they were two years ago.”
Debtors Are Taking Charge
O’Brien’s clients, while still skeptical of the financial and political entities they believe contributed to their misfortune, are more willing now than they were a few years ago to take responsibility for improving their personal finances.
“They have come to understand that reaction makes them victims,” O’Brien said, “while better management of their personal finances is enabling them to take charge and to chart a better financial future.”
O’Brien thinks that there are other parties involved besides creditors, debtors and the federal government.
“The advertising barrage of ‘bankruptcy experts’ during 2009 and 2010 convinced many normally responsible adults to walk away from their financial obligations,” said Obrien.
The Misinformation on Bankruptcy Filings
Wendy Mead agreed: “I truly believe that this hesitancy, as well as some of the negative perception of bankruptcy attorneys, grows from the enormous amount of misinformation that is readily available online, on television and in print.”
Last year, in fact, Mead said she had an intern do a few hours of research, “surfing the web,” looking for incorrect and contradictory information about bankruptcy. She said he uncovered countless examples.
Some sites masquerading as bankruptcy information resources are actually funded by lenders and credit card companies. Operating without oversight, disreputable websites are unfortunately not the only source of deliberately misleading and factually inaccurate consumer opinions.
“I have had many clients,” Mead said, “inform me that creditors call them and tell them they don't qualify for bankruptcy, that they can't keep their homes, that their social security will be taken away and many other things that are simply incorrect.”
Late Night Commercials to Blame?
She continued, “Watch cable TV late at night. The commercials are full of companies making empty promises about eliminating debt without filing bankruptcy. I have literally had dozens of clients spend small fortunes on these programs only to end up filing in the end.”
Regardless of the financial situation an individual or business is in, Mead said, “If someone is thinking about bankruptcy I always suggest that they consult with a reputable bankruptcy practitioner to find out what options they have, what options are not practical and the costs involved.”
Mead added, “It is a great opportunity to correct some of the bad information that is out there.”
Mead’s willingness to speak on the record not only about the unclear causes for statewide decreases in 2011 bankruptcy filings but also the horror stories she’s encountered in her own practice grows directly out of her concern about rampant misinformation.
While the reasons for the downward trend aren’t necessarily all negative, they’re likely no cause for celebration either.
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