GA #2 in bankruptcies

By CARRIE TEEGARDIN
The Atlanta Journal-Constitution
Published on: 01/29/08

Thousands of Georgians facing economic woes have given the state a dubious ranking: the second-highest personal bankruptcy rate in the nation.

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In 2007, bankruptcy courts statewide processed one personal bankruptcy filing for every 65 households, according to statistics compiled by the National Bankruptcy Research Center. Only in Tennessee was personal bankruptcy more common, with one filing for every 59 households.

"The economy is just so bad that that is spurring bankruptcies," said Rich Thomson, a partner at Clark & Washington, Atlanta's largest bankruptcy firm. "We have record numbers of foreclosures every month."

Bankruptcy filings across the nation were up significantly in 2007, and Georgia was no exception. Bankruptcy courts statewide processed 48,227 personal bankruptcy filings last year, an increase of 24 percent over the 2006 total, according to the research center.

In a comparison of the total volume of filings, irrespective of the rates, Georgia also stood out. Only California and Ohio had more 2007 filings than Georgia did.

Georgia has routinely landed near the top of the bankruptcy rankings in recent years. Experts cite a variety of forces, ranging from a slate of creditor-friendly laws, to the state's entrepreneurial spirit to a booming real estate market.

"Many of the things that make Georgia a wonderful place to live also make it potentially vulnerable to spikes in bankruptcy filings," said Jack Williams, a professor at Georgia State University's law school.

The penchant of Georgians to start their own businesses enriches only a minority of the folks who set out to be their own boss.

"Most new businesses fail, that's simply the nature of the beast," said Williams, currently the resident scholar at the American Bankruptcy Institute.

When small businesses go under, that often results in a personal bankruptcy filing as well.

Georgia also stands out for a healthy real estate market that was buoyed in part by reliance on subprime mortgages, Williams said. Those mortgages have much higher failure rates than lower-interest prime mortgages.

The state's attractiveness to young retirees may also be playing a role, Williams said. These are people who are at risk for health problems and vulnerable to bankruptcy if they have no health insurance coverage.

"The folks in the 55 age group and above are the fastest-growing segment of bankruptcy filers," Williams said. "Georgia has a lot of folks who fit in that age group."

Thomson, the bankruptcy attorney, said Georgia's foreclosure laws also push up the number of bankruptcies. Georgia allows one of the fastest foreclosure processes in the nation. The process is fast here, in part, because Georgia allows "non-judicial" foreclosures, meaning that foreclosures can proceed without the approval of a judge.

"Georgia is definitely a creditor-rights state and the non-judicial foreclosure process certainly spurs a lot of bankruptcies," said Thomson, the bankruptcy attorney.

Filing for bankruptcy protection automatically halts a foreclosure sale and gives the homeowner more time to cover overdue mortgage payments.

"Many, many people are able to keep the house" as a result of filing for bankruptcy, Thomson said.

Most people facing a foreclosure file for Chapter 13, which allows consumers to hold onto their house and car, but requires that they repay a portion of their debts. Chapter 13 filings are more common in Georgia than Chapter 7, a liquidation in which most debts are wiped out, but so are all of a consumer's assets that aren't protected by exemptions.

Congress attempted to cut down on the number of bankruptcy filings with reforms that took effect in October 2005. Bankruptcy filings skyrocketed right before the law was enacted, then fell dramatically right after the law was implemented.

But the numbers have been steadily rising since. Overall consumer filings across the country hit 801,840 last year, up 40 percent from the 2006 totals, according to the research center. Experts expect economic problems to fuel another big year in 2008.

Although bankruptcy has become commonplace in states like Georgia, it's still a difficult step for many consumers, Williams said.

"Go down to the court and watch people file these petitions and go through their examinations and talk to them," he said. "You will realize that there is still a tremendous stigma and I'm not just talking about the 10 years it floats on your credit history report. I'm talking about people who really feel horrible about the fact that they are in the situation."

For many, Williams said, bankruptcy could have been avoided if American consumers had a better grasp on the basics of budgeting and debt — and especially preparing for difficult times.

"Many of us are vulnerable," he said. "We're one job layoff or reduction in work hours or disease or illness or accident away from bankruptcy, because we haven't saved for the rainy day."