Regional bankruptcy filings rise by 30 percent

Lynchburg-area bankruptcy filings rose 30 percent for the first quarter of the year compared to a year ago, according to an analysis of records from the U.S. Bankruptcy Court for the Western District of Virginia.

Those numbers could go much higher as lenders restart housing foreclosures after a voluntary moratorium effectively expired last week, said Forest-based bankruptcy attorney Stephen Dunn.

Bedford County, including the city of Bedford, led the region with a 62 percent increase in bankruptcy filings for the first quarter of 2009 compared to the first quarter of 2008.

“That’s where most of the new construction took place and where people upgraded to when they shouldn’t have upgraded (their homes),” Dunn said. “That’s where a lot of the houses are being foreclosed on.”

Dunn, who said he’s seen a 50 percent increase in business this year, noted many of his new clients are in the same situations they’ve always been in — on the verge of a home foreclosure or car repossession. The problem is more widespread now, he said.

“A lot of people coming in have been trying to get their mortgage companies to renegotiate their home loans,” he said. “They’re being promised a renegotiation and they come up to the day before foreclosure and they’re still promising.

“They’re lying to them.”

The Associated Press reported last week that major lenders who had agreed to temporarily halt foreclosure proceedings pending a plan from President Barack Obama’s administration had resumed the process.

Since details about the federal relief plan have been released, the Associated Press reported, March foreclosures were up 46 percent nationwide from a year ago.

Amherst County saw the smallest increase in bankruptcy filings last quarter, an 11 percent rise to 59 filings.

Appomattox County filings increased 29 percent to 27; Campbell County, 25 percent to 99; Lynchburg, 16 percent to 97 and Nelson County, 27 percent to 14.

Lynchburg-based Cox Law Group President David Cox said he has seen more business-related filings this year, although few actual corporate bankruptcies have been filed.

Cox said his new clients are individuals with ownership interests in failed small businesses. In these cases, he said, the corporation can be dissolved, but creditors will still seek payment from the business owner.

Many people in this situation, he said, are tied into the real estate and building industries.

Like Dunn, he said a sizable portion of the firm’s business, about 20 percent, is from filers looking to avoid foreclosure or repossession. Another quarter of his clients are those with medical bills they can’t afford to pay.

And just as he has seen an increase in professionals with higher incomes seeking bankruptcy advice, he’s also seen an increase in clients whose employers have cut back work to avoid layoffs.

“They are folks who are still working, but they’re working 40-hour weeks when they used to get overtime,” Cox said. “Or, they’re working 32 hours when they used to work 40-hour weeks.”

Cox said most people agonize over whether to file bankruptcy, but most, if not all, bankruptcy lawyers in the region offer free consultations.

“It doesn’t cost you anything usually but your time and maybe getting some documents and paperwork together,” he said. “I meet with a lot of people during the day that never come back and that I will tell not to come back because they don’t need to file bankruptcy.”

Sometimes, he said, prospective clients are under the misconception that bankruptcy is “a perfect solution for all problems” when it is not.

When it comes to secured debt, things like car payments, if clients want to keep those items, they’re going to have to keep paying for them under restructured payment plans, he said.

And once a person files bankruptcy, credit is frozen. Filers are also subject to the rules of the bankruptcy court that govern the ability to buy and sell property. The worst part of bankruptcy, Cox said, is often the seemingly unending paperwork and attending court hearings.

“The biggest benefit to filing bankruptcy is that immediate impact that it stops all collection activity, period,” he said. “Creditors can’t call you. They can’t write you. They can’t harass you.”

By the time some people file, he said, they have been getting collection calls every 10 minutes and a mailbox full of nasty letters every afternoon.

In bankruptcy, he said, the idea is either to get a client into a repayment plan he or she can afford under Chapter 13, or to eliminate debt in Chapter 7 if that’s appropriate.

Bankruptcy can be included on a person’s credit report for as long as a decade, which can impact a client’s ability to get credit in the future.

In the past, clients have been able to rebuild credit within a few years when they’ve been responsible.

In the current economy, though, Cox said, when it is more difficult for those with good credit ratings to gain credit, the real impact of bankruptcy filing remains to be seen.