Tampa’s chief bankruptcy judge sees many people 'get behind the financial 8 ball’

TAMPA — By her own account, Caryl E. Delano sort of stumbled into bankruptcy law.

In 1980, she moved from Indiana, where she had received her law degree, to Los Angeles, where she knew almost no one. In a court system otherwise crowded with lawyers and judges, bankruptcy was the one field in which attorneys could establish a practice fairly quickly.

"It was a smaller bench so young attorneys had the opportunity to start carrying their own briefcases and going to court,'' Delano recalls. "I had no plan of being a bankruptcy lawyer, but I started doing it and really fell in love with it.''

Fourteen years later, Delano, her husband and children moved to Tampa, where she grew up as the oldest of eight kids and graduated from the University of South Florida. She practiced law for 14 years before being appointed in 2008 to a 14-year-term as a bankruptcy judge in Florida’s middle district. ("I have a theme in my life of 14 years,'' she says.)

On Oct. 1, Delano, 64, became chief bankruptcy judge in the middle district, which stretches from Jacksonville to Fort Myers and is the fourth busiest of the nation’s 94 bankruptcy courts. She recently spoke with the Tampa Bay Times. (The interview was edited for length and clarity.)

Why are there so many bankruptcy filings in this district compared to others?

One reason is because of the size. We’ve got three big metro areas — Jacksonville, Orlando, the Tampa Bay area plus Fort Myers — so it’s a huge district. Also, there is something about people in Florida. They are willing to take chances as far as business is concerned, whether it’s real estate development or starting a business. One of the consequences is that sometimes those businesses fail and either the business files or the individuals behind them file. Bankruptcy is sort of an escape valve for our capitalist economy.

In August, Florida’s middle district had the third highest number of bankruptcy filings in the nation, a total of 2,224. Is that a sign that things might not be going as well as strong job numbers indicate?

The filings have started to go up after years of decline, but they haven’t gone up significantly. Through Sept. 30, we’re up about 8 percent from last year but compared to five years ago it’s down almost 30 percent. We were up to 65,000 cases (a year) in 2010 and now we’re down at 25,000. It’s just the ebb and flow of the economy.

But there must be some reason filings are up, even if nowhere to the levels after the Great Recession.

During and after the recession, a lot of commercial lenders and borrowers modified loans and a lot of those loans might be coming due at this time. That would cause more bankruptcies to be filed. I go down to Fort Myers, and recently restaurant filings have increased. Hurricane Irma (in 2017) had a devastating effect on the economy in Fort Myers. When I first started going down there, all the lawyers were talking about "season, season, season'' — the season is Thanksgiving or Christmas to Easter and if a restaurant doesn’t make enough during the season that restaurant is in terrible financial shape. When Irma hit, it damaged restaurants so they couldn’t open for the season.

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RELATED: ‘What caused the bankruptcy?’ — a day with debtors in Tampa Bay bankruptcy hearings

In your many years in court, what have you found to be the most common causes of bankruptcy?

It’s the same basic reasons. Someone loses a job and is unemployed a period of time, they get behind the financial 8 ball and can’t catch up. Sometimes it’s a two-income family and both spouses work and they end up having marital problems and get divorced. They could barely manage on two incomes and when setting up two separate households, they can’t swing it financially. Sometimes it’s an illness, sometimes it’s medical bills. Sometimes it’s people who live beyond their means but a lot of time it’s because something bad has happened to that person.

Are there any steps bankruptcy courts have taken to help people out?

One that’s been in effect several years is a mortgage mediation program. Under the bankruptcy code, courts don’t have the authority to modify mortgages that are secured by a debtor’s principal residence but we can order the parties to mediation to see if they can work something out. We utilize what we call a portal so the borrower or debtor would upload to the cloud and the lender’s attorney and the borrower’s attorney all have access to the site. One problem used to be that the borrower was sending information to the lender, the lender would say, ‘‘We can’t find it, send it again,’’ the borrower would send it again and weeks had gone by. Having the portal enables everybody to be on the same page. Lenders couldn’t deny having received something.

Our regular Chapter 13 program allows people to cure arrearages on their mortgage. Let’s say someone loses a job and can’t work for a year and now they’re $18,000 behind on their mortgage. Then they get a job and call the mortgage company and say, "I want to cure this default.'' The mortgage company says, "Send us a cashier’s check for $18,000.'' They don’t have it, so a Chapter 13 will let them make monthly payments to a trustee over five years. Lots of people are able to save their houses that way.

Do you see many people with big student loan debts, which people generally remain responsible for even if they file bankruptcy.

A big issue right now is the looming student loan crisis. We have recently entered an administrative order setting up a student loan management program to allow borrowers to address their loans in the context of a Chapter 13 case. Either they pay the bankruptcy trustee or work out a forbearance agreement (an option to delay payments) with the lender. The program is in its infancy but we’re hoping that it will be successful. That’s just in the middle district (of Florida) but the southern district is looking at a similar program and so is Arizona.

Any other changes?

There is one other major program—Judge Cathy McEwen is spearheading a bill trying to get traction in Congress. In Chapter 11, most of the big cases get filed in Delaware or the southern district of New York because under current bankruptcy law (filing) is either where the company is incorporated or has its business operations. Many choose to file in the southern district or Delaware and one reason is because the banks and the banks’ lawyers like them to be filed there. But some people feel very strongly that a company should file bankruptcy where the employees, stakeholders and creditors are because otherwise they’re being denied access to court. An example is Catalina (a St. Petersburg-based marketing firm) filed in Delaware, but they had employees here and customers here and creditors here. It makes it more difficult for those parties to have a voice.

Your predecessor, Michael Williamson, said he couldn’t wait to hand over the reins because being chief bankruptcy judge is so much work — you have to keep handling a full caseload but also have a ton of administrative responsibilities.

Now you’re scaring me. He’s laughing way too much!

****

The most common types of bankruptcy:

Chapter 7 – A liquidation case for people and businesses that cannot pay their debts and agree to let their non-exempt property be used to pay creditors. Generally, in Florida, individuals may claim as exempt their homestead property, income, alimony and child support, pensions, IRAs, 401(k) plans, disability benefits, and income. Debtors also can keep up to $1,000 in personal property ($4,000 if they don’t have a homestead exemption) and $1,000 in equity in a motor vehicle. Debts that can be "discharged,'' or forgiven, generally include unsecured debts such as medical bills, credit card bills, payday loans and personal loans. Debtors might still be responsible for some debts including most student loans and IRS taxes. Depending on the amount of their income, some individuals may not be eligible for Chapter 7.

Chapter 13 – Individuals who have regular income propose a plan to repay all or part of their debts over three to five years through monthly payments to a Chapter 13 trustee. Chapter 13 allows debtors to cure defaults on home mortgages and car loans and to pay the IRS over time.

Chapter 11 – Business entities, such as corporations, and individuals may file for reorganization under Chapter 11. The debtor proposes a plan to repay creditors over time.

For more information, go to www.flmb.uscourts.gov