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Bankruptcy filings down but may signal financial struggles

By David Markiewicz
Cox Newspapers / August 18, 2011

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ATLANTA - An 8 percent decline this year in bankruptcy petitions nationwide might appear to be a positive economic sign, especially for a country rocked by stock market volatility, a credit downgrade, and continued labor and housing woes.

Some industry experts, however, warn that optimism is not in order. The number of bankruptcies may be down, they say, because people cannot afford to file and because there is little pressure from creditors to do so.

The result may be a mass of looming bankruptcy cases, not unlike the shadow foreclosures feared in the real estate business. If the economy does not take a sharp turn for the better, those who have been teetering on the brink of bankruptcy eventually will be forced to file. What the impact of a large number of bankruptcies would be is unclear.

Jack Williams, a Georgia State University law professor who specializes in bankruptcy, said there is no indication that the number of bankruptcies is down as a result of people being better off.

“The economy hasn’t turned,’’ he said, “and, if anything, it may be going back down.’’

In the future, he added, “we’ll see a lot more people who have weathered the storm so far but cannot hold on any longer.’’

He refers to the group as “the invisible class of debtors who can’t afford to file.’’

It can cost as little as a few hundred dollars to file for bankruptcy, but the tab can jump to several thousand dollars depending on the complexities of the filing. People who have a house, for example, would pay more.

“We see people every day who can’t afford to file,’’ said Matthew Berry of Berry & Associates, an Atlanta bankruptcy law firm.

The number of bankruptcy petitions likely will rise when the employment situation improves, Berry said. When they are back at work, financially troubled individuals will be able to pay the price to file, and they will have the income to pay their creditors.

“As they go back to work,’’ Berry said, “collectors become more aggressive, and that will force them into bankruptcy.’’

Just how many bankruptcy cases are lurking in the shadows is unknown. Experts who suspect a large number of dormant cases base their assessments on the state of the economy and the number of filings at this time, which is lower than what would be expected given the dire condition of the economy.

Shadow bankruptcy cases are a concern in the business world, too, particularly for small companies. In some case, troubled firms do not file for bankruptcy, Williams said.