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Mass. bankruptcy claims still on the rise

Joblessness pushes filings despite signs of recovery

By Todd Wallack
Globe Staff / February 16, 2011

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Despite signs that the economy is slowly improving, bankruptcy filings continued to climb in Massachusetts for the fourth straight year.

In 2010, 23,618 people and businesses in Massachusetts filed for bankruptcy protection from creditors, up 13 percent from 2009 and nearly double the number who filed in 2007, according to figures released yesterday by the Administrative Office of the United States Courts.

Nationwide, the courts reported 1.59 million bankruptcy filings in 2010, up 8 percent from 2009.

Those are the highest figures both in Massachusetts and nationally since 2005, when a rush of people claimed bankruptcy just before new federal rules took effect that made it more difficult to file.

The continued increase in bankruptcy filings is the latest reminder of the toll the recession and housing bust have had on families over the last few years. While unemployment has dipped slightly in recent months, millions of Americans have remained out of work for years, exhausting their savings, running up credit card and other bills, and eventually claiming bankruptcy.

The Congressional Research Service recently estimated that 1.4 million Americans have been out of work for 99 weeks or more, long enough to exhaust their unemployment benefits. And millions of Americans continue to face foreclosure.

Joseph G. Butler, a bankruptcy trustee and lawyer at the Boston law firm Barron & Stadfeld, said most of the cases he sees involve people who were laid off and have exhausted their unemployment benefits and savings. One change he has noticed from several years ago: Filers used to plan on keeping their homes somehow, but now they often have already lost their homes in foreclosure.

He also noted that bankruptcy filings tend to trail changes in the broader economy, so it is not unusual to continue to see a high level of new cases while the economy itself is picking up.

Another lawyer involved in bankruptcy cases, Anthony Rozzi of Haverhill, does not expect the economic recovery to affect the tide of filings anytime soon.

“This is a huge ship that is not going to stop for a long time, and there are going to be a lot of people caught up in its wake,’’ he said.

Rozzi said most of his clients have run into trouble because either they lost a job, were sick and could not work, or could not keep up with rising expenses because they have not received a raise in years. But he said some people often take other measures to stave off bankruptcy, such as taking on more credit card debt, that just end up making the situation worse.

“A person gets in a hole, and they panic,’’ Rozzi said. “They keep digging and digging, and the hole keeps getting deeper and deeper and deeper.’’

The higher rate of new cases in Massachusetts than in the nation as a whole may be due to the fact that the state slipped into recession later than the rest of the country — meaning it will probably take months longer for bankruptcies to peak here.

“You didn’t have as many people file several years ago,’’ said Jean Braucher, a resident scholar at the American Bankruptcy Institute, an industry group in Alexandria, Va. “They’re getting into the pipeline now.’’

In a bright spot, business bankruptcies fell both nationwide and in Massachusetts.

Many corporations have reported stronger profits as the economy has slowly recovered, or they cut costs. Across the country, 56,282 corporations filed for protection, down 7 percent. In Massachusetts, 577 firms filed for protection, down 17 percent.

But the decline in corporate cases has done little to reduce the overall pace, since the vast majority of bankruptcies — about 96 percent — are filed by individuals.

Going forward, the American Bankruptcy Institute predicts bankruptcies will probably decline slightly in 2011 but still remain relatively high.

Braucher said that financial companies started cutting back on credit card lines and other lending two years ago, reducing the amount of debt some consumers can carry, potentially reducing the level of filings.

But unemployment and foreclosures remain stubbornly high, which will probably continue to drive people to the courts.

“The economy may be getting better, but you can’t tell that from bankruptcy filings,’’ he said.

Todd Wallack can be reached at twallack@globe.com.