By Alissa Kline, originally published in Buffalo Business First on 8/18/16.
Bankruptcies are down again. Will it last?
Six months ago, bankruptcy filings in U.S Bankruptcy Court’s Western District of New York rose more than 20 percent year over year, a rare increase in a region where the number of new cases trended downward for several years.
During the next few months, filings went something like this: down, down, down, up, then way down. Whether or not the numbers will stay low or begin to escalate depends on who’s answering.
Business First talked to three bankruptcy attorneys about what’s going on.
Peter Grubea, Peter Grubea Attorneys at Law
He said he can’t believe how many inquiries he has fielded from consumers who are thinking about filing for bankruptcy. In fact, he expects the number of new cases to “go up dramatically” in the next few years because of two factors: credit card debt is on the rise and lenders are making it more difficult to modify mortgages.
“I’m seeing people with credit card debt that I haven’t seen since 2008,” said Grubea, who has offices in Buffalo and Rochester. “On top of that, I’m seeing more people get turned down for loan modifications, which means that unless you can meet stringent eligibility rules, you go back to needing to file for bankruptcy in order to save your property.”
He said he has filed approximately 15,000 bankruptcy cases during his 20 years as a bankruptcy attorney in Western New York. Just before federal bankruptcy laws changed in October 2005, he filed 1,000 cases in one month.
“You could hear a pin drop for the next year,” he said. “Then it started to increase again in 2007, 2008 and 2009. It dropped off after the financial crisis.”
The local numbers tell the same story. Data from the district shows that filings peaked in 2009 at 9,729 and then began a long-running descent, ending 2015 at 4,425 filings for the 17-county district.
Through July of this year, filings total 2,486, down 7.5 percent from a year ago.
“The overall trend, in my opinion, is that it’s clearly hit the bottom and the numbers are going to go up,” Grubea said. “It could be a good sign if the banks are lending more and people are spending more, but in a way it’s scary, too.”
William Brown, Phillips Lytle LLP
Brown doesn’t share the same outlook. He has been involved in the world of business bankruptcy since 1979, working on behalf of lenders and trade creditors as well as corporate clients filing for Chapter 11.
He compared bankruptcy trends to a sine wave that slopes gently up and then back down and then back up again. But the sine wave cycles ended in 2008 when the financial crisis hit and business bankruptcies in general declined.
“The world changed in many ways and probably one reason for it is the continued low interest rates,” Brown said. “We have not seen that same sine wave cycle … and I don’t know that we ever will again. I think this is the new normal.”
But that doesn’t mean business bankruptcies are dead. He said there are sectors – the oil and gas industry and ancillary services, for example – where bankruptcy cases are more prevalent.
“I can’t predict what’s going to happen, but I think the variation in local filings is due to more anecdotal explanations than anything else,” he said.
Christopher Grover, Jeffrey Freedman Attorneys PLLC
For a while, Grover studied the local bankruptcy filing reports every month. But as the number of cases continued to fall, he stepped back.
“I actually stopped tracking them as closely as I was because I was driving myself crazy trying to figure out where the bottom was,” he said.
He said the increase in February is likely related to tax returns. With tax return money in hand, consumers who are struggling can afford to pay filing fees.
Otherwise, this year’s numbers don’t especially stand out to Grover. He pointed to the fact that the year-overyear decline in July – 7.5 percent – is awfully close to the same decline in July 2015 when the numbers dropped 7.9 percent.
“Eventually, interest rates are going to rise and that’s cyclical, as well,” he said. “So we’re just in a very big lull right now and we don’t know when we’re going to turn around.”