Philadelphia-area bankruptcies dropping a bit

At Ninth and Market Streets in Philadelphia stands a seven-story, limestone building born of the last century's great financial crisis, the Depression. With its stark exterior and narrow windows, the hulking block of stone exudes a sense of foreboding.

Perhaps that's appropriate.

Inside is U.S. Bankruptcy Court for the Eastern District of Pennsylvania, where the stunningly elegant art deco courtrooms are welcoming in a way the severe exterior is not. Indeed, the indebted have come flocking.

Bankruptcy filings in this region remain 50 percent higher than in 2007, as individuals, families, and businesses fill the red-cedar-paneled second-floor courtrooms in search of a fiscal makeover.

Filings jumped from 10,461 in 2007 to 15,813 in 2010. Most are personal bankruptcies.

There has been a slight decrease in the second half of 2011, which raises a question: Are family and business finances better, or are filing rates down because there are fewer and fewer people who haven't already gone broke?

"The decline in bankruptcy filings, while welcome, is only of modest comfort to indicate that the economy has stabilized," said Yung-Yu Ma, an assistant professor of finance at Lehigh University. "The problem is that the stabilization is at quite a low level and the 'bounce back' is very modest," he wrote in an e-mail.

Bankruptcy attorney Raymond M. Patella of the Fox Rothschild law firm said bankruptcy filings were at a low in 2006 and 2007 after new, tougher restrictions were imposed and then they jumped as the economy collapsed after the banking crisis in 2008. The filings kept increasing as the economy kept tanking and the unemployed ran out of cash.

"It takes awhile for people to fall sufficiently behind on their mortgage" to be forced into bankruptcy court, he said.

"If you were current in '08, and all of a sudden you lose your job, it doesn't mean you are going to file for bankruptcy in October of '08."

Or, as Ma put it, "Personal bankruptcy filings are more of a lagging indicator - for example, if someone loses a job, you can expect that he will struggle with bills and debt for a while, and look for a new job while collecting unemployment insurance."

The Eastern District encompasses the nine counties in Southeastern Pennsylvania. Bankruptcies in Philadelphia were up only 7 percent in 2010 compared with 2007; in Montgomery County they were up 107 percent; Chester County, 100 percent; Bucks County, 86 percent; and Delaware County, 65 percent.

In Camden, the federal bankruptcy court that serves South Jersey reported filings reached 6,600 by 2010, up 150 percent from 2007.

In fiscal year 2011, which ended Oct. 30, the good news was that the annual increase in bankruptcies was replaced by a slight decrease in both areas - 2 percent in South Jersey and 5 percent in Southeastern Pennsylvania.

Bankruptcies remain stubbornly high even though the nation's gross domestic product is back to prerecession levels and corporate profits are up. The unemployment rate, of course, remains dismal, and individual incomes for all but the very rich are flat, at best.

The courthouse building, with a post office on the first floor, was financed by the federal Public Works Administration, which was established to put people back to work. Work lasted from 1937 through 1941.

Provided the economy isn't forced to weather another economic crisis - the euro, anyone? - Patella was willing to offer a prediction. "I would say filings will go down, if for no other reason than they are at historically high numbers."

Ma noted that about 25 percent of personal-bankruptcy filers indicate a medical reason for their bankruptcy filings, a figure he expected to be relatively constant.

Alan Gover, a partner in the financial restructuring and insolvency practice at White & Case in New York, said in an e-mail: "In effect, around 80 percent of the businesses and the workforce now produces what 100 percent used to produce."

"It is a tough situation for those 'outside the system' who have neither a business or job. There just aren't a lot of parties left to file."