Tampa bankruptcy trustee Terry Smith grimly jokes that the landmark 2005 overhaul of bankruptcy law was supposed to make it harder to file.
You would never know it, based on the surge in cases from debt-riddled individuals and businesses across the Tampa Bay area in recent months.
Bankruptcy filings in the Tampa/Fort Myers division jumped nearly 21 percent in the first quarter, a pace that would smash last year's record.
Filings in the Middle District of Florida, which includes the Tampa office, are also up about 21 percent. The 16,149 cases filed in the Middle District, which also includes Orlando and Jacksonville, make it the second-busiest bankruptcy court in the country behind California's Central District.
According to preliminary numbers, March was one of the Middle District's busiest months on record, trailing only the two months in 2005 in which filers were racing to beat the bankruptcy law changes.
And, if projections are right, it hasn't peaked yet.
U.S. Bankruptcy Judge Catherine Peek McEwen, who is juggling 6,500 cases in Tampa, said the district's chief judge in Jacksonville told judges to anticipate a record year. "Our case managers are stressed," she said, "but they're able to keep up with the pace of things."
Charles Moore, a bankruptcy lawyer in St. Petersburg with 20 years' experience, is the busiest he has ever been. He has seen lawyers with dwindled demand in divorce, personal injury and even criminal law all "hanging up their bankruptcy shingle" to get a piece of the action as bankruptcies rise.
"I think we may peak in a year to 18 months and then start on the downside," he predicts.
Ed Whitson, a bankruptcy lawyer with Tampa-based Akerman Senterfitt, likewise forecasts a very slow turnaround over the next couple of years. Whitson said he's encouraged that banks are lending again at a "modest" level, but he's waiting for unemployment to fall. "Until you have more job creation, you're going to see that high level of consumer bankruptcies," he said.
Like unemployment, bankruptcy is a lagging indicator of economic recovery. It tends to peak long after a recession officially ends, even after unemployment tops out. It's often a last resort for strapped consumers and businesses who have exhausted emergency funds and the largesse of relatives and friends.
On the business bankruptcy side, filings have been broad-based: home builders and developers, retailers, professional services and restaurants. McEwen noted that even fast-food outlets haven't been recession-proof, with a local Church's Chicken franchisee, several Dunkin' Donuts franchisees and most recently an Arby's chain all going through bankruptcy proceedings.
On the personal bankruptcy side, industry players say the single-biggest driver is the ailing housing market. Moore says 75 percent of his workload involves cases where real estate is being surrendered.
Banks have been largely resistant to efforts to cut mortgage principals to help stressed homeowners. And they've been criticized for being slow and reluctant to modify mortgage payments.
In a report (PDF) released Wednesday, the Treasury Department said the number of permanent modifications grew in March to 230,000 households nationwide, an increase of 35 percent in one month.
But the modifications still represent a fraction of underwater homeowners. And it may be a case of too little, too late to stem the tide of bankruptcies, particularly under the cloud of double-digit unemployment.
"People are trying to keep their homes, but many of them have suffered income reduction or the loss of jobs and obviously that's a problem," said Smith, the bankruptcy trustee in Tampa who specializes in Chapter 13 filings.
Most debtors with no assets file for bankruptcy liquidation under Chapter 7. But individuals with a steady income and assets they want to hold onto often file under Chapter 13 instead. A Chapter 13 filing halts foreclosures, protects some assets and gives filers three to five years to make up late payments.
The more than 1,500 Chapter 13 filings in the Middle District in March were an 18 percent increase from March 2009. Chapter 13 can help homeowners avoid being forced to pay off second mortgages or home equity loans. That, at least in part, could help explain the rise in popularity of Chapter 13 filings, especially given Florida's current housing crises.
"Some of those people have used their homes as a piggy bank for a number of years," Smith said. "Now they're breaking the piggy bank and throwing it away."
Jeff Harrington can be reached at email@example.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.301 5082