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O.C. bankruptcy filings jump 62% in May

July 13th, 2009, 6:00 am · 17 Comments · posted by Jan Norman, small-business columnist

The number of individuals and businesses seeking protection in  bankruptcy court soared 61.6% in May to 1,191 cases, the highest one-month total since the bankruptcy law changed in October, 2005.

may-bankruptcies1

The hike in filings reflects California’s weaker economy than the rest of the United States. Nationwide, bankruptcy filings rose 37% in May compared to a year earlier, according to the American Bankruptcy Institute.

Another indication of greater economic struggles locally: The number of filings nationwide dropped from April, but in all the local courts, bankruptcies rose. In Orange County, the increase was 5.4%

Orange County filings have been trending upward for years:

oc-bankruptcy-timeline1

As bankruptcy filings continue to soar and the number of businesses that survive such a filing continues to drop, economists and public policy planners are looking at just who is ending up in bankruptcy court.

A recordkeeping change by the U.S Courts in the mid-’80s virtually eliminated the count of bankruptcies filed by small-business owners, the self-employed and independent contractors. These are people who file for bankruptcy protection because their business goes belly up.

Until that time, business bankruptcy filings were around 18% of all cases; afterward, just 2% to 3% were. Bankruptcy scholars Robert M. Lawless and Elizabeth Warren (now head of the TARP oversight committee) give a detailed explanation about what happened in a California Law Review article,  “The Myth of the Disappearing Business Bankruptcy” and conclude that failed businesses still account for about 17.4% of bankruptcy filings.

Because business failures are undercounted, policy makers tend to blame consumer overspending for most bankruptcies, Lawless and Warren argue. They may be creating laws and regulations that are ineffective or counterproductive in dealing with resulting economic problems.

Instead of individuals going on a credit card buying binge or losing their homes to foreclosure, many individual filers lost their businesses because the credit markets froze last fall, causing many financial institutions to stop making loans and cut off lines of credit.

Some experts expect bankruptcies, especially business filings, to continue to rise into 2010. Euler Hermes, which provides insurance against defaults by trading partners estimates that on average gross domestic product must climb 2% to 3% to ease insolvencies.

Other economy stories…

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 17 Comments

  • Gunner says:
    July 13, 2009 at 7:27 am

    A recession is a great way of weeding out the weaker businesses to leave the strong businesses to survive and thrive during the recovery.

    • jennychangf8 says:
      July 13, 2009 at 8:22 am

      gunner, is this a good sign that housing had bottomed?

      • SC2 says:
        July 13, 2009 at 8:41 am

        Spring bump = false housing bottom or evidence that higher end is reducing prices more, thus resulting in slight median increase.

        We are seeing more places priced 900k-1.2M continue to sit despite price reductions. And we are now in mid-July. Oh oh….. school to start soon. Then as we enter the fall, buying levels will taper off, possibly severely.

        I guess people just don’t have an extra 250k to get to the 729k limit anymore…. Oh well. Look out below. Going to be a rough fall/winter in SoCal housing. If people need to sell, they better price it well to sell ASAP in my opinion. Only things that sell are those that are priced “right” (so that people who purchased recently make very little at most, and most likely take a loss).

        Also interesting to note that “housing” blogs focus on purchase and sales price, but all of that discussion fails to consider the fact that such prices do not reflect remodeling costs, which can be very substantial. Thus, although it may look like a seller is “breaking even” or making some money, the seller may actually be losing a large amount as a result of work put into the house, particularly after considering property tax.

        Increasing UE and BK in OC don’t help…. With all of the artificial govt support, housing is still in trouble. What happens when all of that funny money goes away and people continue to lose jobs and make less if they are able to keep their job?

  • Margaret says:
    July 13, 2009 at 7:56 am

    Yeah and they keep trying to tell us everything is better the job market is improving ect ect. We can all see its not.

  • ocobserver says:
    July 13, 2009 at 8:00 am

    According to the obama economists we turned the corner and the economy is in recovery mode. What happpened?

  • Dina says:
    July 13, 2009 at 8:09 am

    With the courts in furloughs how long will it take to sort through all this mess?

  • jennychangf8 says:
    July 13, 2009 at 8:20 am

    no worry people, Obama is going to bailout us out. We just need our gov’t to keep printing out money.

    • ocobserver says:
      July 13, 2009 at 8:23 am

      that’s it. you’re a genius. all we need are more printing presses! let’s remove george from the $1 bill and put barry’s picture on it. in laser printer we trust!

  • gary says:
    July 13, 2009 at 8:23 am

    gunner your an idiot. if that was the simple solution than BOA and AIG would be gone. bloated public sector is whats killing the state and proping up large business that should be allowed to fail is whats screwing up everything.

  • gareeyph says:
    July 13, 2009 at 8:51 am

    Small business in California will continue to struggle as long as these whores in Sacramento keep supporting these out of control, overpaid public employees. These public employee unions need to be brought back to reality.

  • JohnB says:
    July 13, 2009 at 9:27 am

    In a way I’m glad, sorry for the people but glad the credit card companies are eating more losses. If enough people file for bankrupcies it will put an end to the useless FICO scores.

    • coconuts says:
      July 13, 2009 at 11:27 am

      JohnB: You’re mistaken if you think the credit card companies are “eating it.” We consumers are the ones eating it, as the price of goods and and services go up to make up for the purchases of other consumers who don’t pay back what they borrowed to make those purchases. We all have to pay the price for those who consume but don’t pay for their like we do — the cost of doing business goes up to make up for the bad debt — it gets passed along to every consumer. Credit can be good and bad — it’s a double-edged sword. And it’s unfortunate for those folks who must choose this last resort of BK. But folks who spend relying on a credit line should remember that it’s $$ that needs to be paid back. And you shouldn’t think it’s the credit card companies that are suffering.

  • Jerry says:
    July 13, 2009 at 9:55 am

    Business and personal bankruptsy filings are up, unemployement is up,but the democrats in Sacramento want more tax increases. Brilliant. Election day is coming!