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Number of bankruptcy filings continues to rise
PATRICIA MANSON, Law Bulletin staff writer

Consumers kept the courts busy over the last year, filing more than 1.6 million bankruptcy petitions as they struggled to cope in a bad business cycle.

The Administrative Office of the U.S. Courts reported on Friday that consumers seeking to liquidate or restructure their debts filed 1,618,062 petitions in the year ending March 31.

That figure represented a 2.8 percent increase over the number of non-business petitions filed during the previous 12-month period.

The rise in the number of individuals turning to the bankruptcy courts for relief ”is related to unemployment and the length of unemployment and the general bad business cycle,” according to Melanie Rovner Cohen, a partner at Quarles & Brady.

”Families can only hold out so long,” Cohen said Monday. ”I think the general business cycle is still down and it’s been down for quite some time, and that impacts most dramatically on the consumer.”

Cohen said the 8.6 percent increase in filings under Chapter 11 — the section of the U.S. Bankruptcy Code that allows a business to continue operating while it establishes a plan to repay creditors — was another indication that the economy is still in a down-market cycle.

And Cohen said she expects the number of Chapter 11 filings to continue to rise if times become better and open up more opportunities for lenders to sell the assets backing up their loans.

”I would anticipate an increase in Chapter 11 filings when the economy does improve because the collateral which secured the lenders’ obligations will begin to have value in the market, the lenders will attempt to realize on that value and debtors may be forced to file for bankruptcy,” Cohen said.

While the number of Chapter 11 petitions brought in the year ending March 31 was higher than the number brought the previous year, the overall number of business filings dropped 2 percent.

Nationwide, 36,785 business petitions were filed, bringing the total number of bankruptcy filings to 1,654,847.

Those filings included 167,554 brought in the three states — Illinois, Wisconsin and Indiana — that constitute the 7th Circuit.

Nearly half the 7th Circuit petitions, or 83,634, were filed in Illinois. Of those petitions, 57,586 were filed in the Northern District.

The filings in the 7th Circuit included 2,226 business and 165,328 non-business petitions.

Illinois debtors accounted for 927 of the business and 82,707 of the non-business filings. More than two-thirds of those petitions — 656 business and 56,930 non-business — were brought in the Northern District.

The largest number of the petitions filed in the year ending March 31 were brought under Chapter 7, which allows debtors to keep certain exempt assets while the remaining property is sold to repay creditors. Most of these petitions are brought by individual consumers.

Nationwide, the number of Chapter 7 petitions filed rose 3.6 percent to 1,176,654. Of those petitions, 131,135 were brought in the 7th Circuit; 62,981 in Illinois; and 42,003 in the Northern District.

The next largest group of petitions was filed under Chapter 13, the Bankruptcy Code section under which creditors are paid in full or part in installments over three to five years. Consumers make up the bulk of the debtors who seek Chapter 13 protection.

In the year ending in March, Chapter 13 filings across the country inched up 0.3 percent over the previous 12-month period to 465,878.

The 7th Circuit accounted for 35,858 of those petitions; Illinois for 20,340; and the Northern District for 15,346.

Filings under Chapter 12, which is designed to address the needs of financially distressed farmers, abruptly reversed course.

While such filings skyrocketed a whopping 62.5 percent from March 31, 2002 to March 31, 2003, they dropped 9.3 percent this last year.

Of the 573 Chapter 12 petitions filed nationwide, 48 were brought in the 7th Circuit; 20 in Illinois; and two in the Northern District.

Bankruptcy judges continued to shoulder large dockets as filings per authorized judgeship reached 5,108 at the end of March, compared to 2,965 a dozen years earlier.

Chief U.S. Bankruptcy Judge Eugene R. Wedoff said jurists serving in the Northern District are no different than their counterparts around the U.S.

”The caseloads remain very, very heavy,” Wedoff said. ”We’ve got a lot of work to do here in bankruptcy court.”

Statistics on bankruptcy filings are available on the U.S. judiciary’s Web site at http://www.uscourts.gov under Newsroom/Bankruptcy Statistics.

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