Sunday, October 9, 2011

Phoenix-area bankruptcy filings continue to drop, but trend could be deceiving

On the surface, the continuing decline in metro Phoenix bankruptcies is good news, highlighted by a 29 percent drop in filings during September from one year earlier - the largest such decline since before the recession began.

But the eighth straight month of year-over-year improvement has bankruptcy and consumer-finance experts scratching their heads, because it hasn't come against a favorable economic backdrop.

"We've seen our own consumer filings down about 20 percent over the last three months," said Pernell McGuire, an Arizona bankruptcy attorney. "But we're not exactly sure why."

Phoenix-area consumers and businesses commenced 1,999 bankruptcy filings in September, the smallest number since February. The 29 percent year-over-year drop was the largest improvement amid the current economic cycle, by a wide margin.

But it has come amid a sluggish economy, a high unemployment rate and other negatives.

"Maybe people are having a hard time coming up with the money even to file a bankruptcy case now," said McGuire of law firm Davis Miles & McGuire Gardner, which has offices in Tempe and northern Arizona.

"Or perhaps most of the people who were going to file have already filed, or maybe most of the people who have walked away from their homes already have done that."

McGuire said he isn't seeing as many real-estate-related bankruptcies lately, with most cases reflecting more traditional causes, such as high credit-card or medical debts.

The declining filing trend probably doesn't reflect a sudden, marked improvement in consumers' ability to handle debts.

In fact, the American Bankers Association on Wednesday reported that consumer delinquencies moved higher in the second quarter, with nine of 11 loan categories deteriorating.

Credit cards were a bright spot, with delinquencies - loans 30 or more days late - falling to 3.22 percent of all accounts from 3.40 percent in the first quarter. But delinquencies were higher on home-equity, auto and other types of loans.

"Lackluster job creation, private-sector uncertainty and public-sector job cuts have stalled momentum and increased pressure on consumers as the economy struggles to find a way forward," said the ABA chief economist, James Chessen, in a statement. "It's hard to envision significant improvements in delinquency rates this year given the sluggish economy and falling consumer sentiment."

Bankruptcies also have eased across the U.S., with September filings down 17 percent compared with September 2010 and 4 percent lower than August, reported the American Bankruptcy Institute and National Bankruptcy Research Center.

"The trend of declining filings has been consistent with consumers continuing to rein in their spending (and) household debt and an overall pullback in consumer credit," said the institute's executive director, Samuel Gerdano, in a statement.

by Russ Wiles The Arizona Republic Oct. 6, 2011 12:00 AM

Phoenix-area bankruptcy filings continue to drop, but trend could be deceiving

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