New Yorkers file for bankruptcy in droves
October 23. 2007 2:56PM
The number of personal bankruptcy filings rocketed 70% in the past year due in part to rising debt and a housing slowdown.
Chapter 7 and Chapter 13 filings in the city increased to 10,541 over the past 12 months, marking a 69% increase.
The largest increase, 83%, was recorded in Chapter 7 filings in the Brooklyn branch of U.S. Bankruptcy Court, which includes filings for that borough as well as Queens and Staten Island.
In the Manhattan branch, which includes filings for that borough and the Bronx, Chapter 7 filings were up 59%.
Bankruptcy attorneys said two factors account for the sharp increase. First, the numbers are high because they are being compared to an abnormally low period for bankruptcies in 2006, the year after the bankruptcy law was overhauled. Prior to the change in October 2005, personal bankruptcies soared as people rushed to file under the old, more liberal bankruptcy law.
Aside from that, attorneys say, bankruptcy filings are going up because New Yorkers are suffering increased pressure from rising debt and the slowing housing market.Many debtors who own homes are filing under Chapter 13, as well as Chapter 7, of the bankruptcy code.
Even though current law doesn’t allow mortgages to be restructured in bankruptcy in a Chapter 13, some filers are choosing to work out extended payment plans for credit card and other debt when monthly payments on adjustable rate mortgages reset to higher levels. Congress is considering measures to make it possible to restructure mortgages, which, attorneys say, would increase filings sharply as more homeowners use the courts to save their homes.
Meanwhile, some debtors are choosing to file Chapter 7 as an alternative to foreclosure because the latter can lead to taxable income for debtors. In addition, the negative credit information from a foreclosure stays on a credit record for a longer period than a bankruptcy, says Manhattan bankruptcy attorney Stephen Kass.
“A year ago, I didn’t see any Chapter 7 filings related to real estate,” Mr. Kass says. “Today, I am seeing about two a week.”