Insolvent count not slowing in Nevada

Despite a slowdown in bankruptcy filings around the country in 2010, some local attorneys are predicting that Nevada filings will continue to rise in 2011.

Nationally, the number of bankruptcies slowed from its breakneck pace of recent years. About a dozen states recorded a decline in filings from consumers and businesses, an Associated Press tally Tuesday showed. But local bankruptcy law firms aren’t expecting an easing in Nevada.

Filings collected from the nation’s 90 bankruptcy districts showed 113,000 bankruptcies in December, down 3 percent nationwide from the same month a year earlier. That followed a similar year-over-year decline for October. It had been four years since an individual month showed such an improvement.

Recession-weary Nevada was in the middle of the survey, showing an increase of 1 percent.

A number of Las Vegas bankruptcy attorneys said their bankruptcy business showed no signs of slowing. One lawyer, Anthony DeLuca, recently increased his staff by a third just to handle the demand.

"It’s as busy as it was last year, and it is going to get even busier," he said, noting his addition of 10 new employees a month ago. "This year, there will be more filings from last year."

DeLuca said the Silver State is unique because of the massive depreciation in home prices.

"The difference in Nevada is the housing market," he said. "Other states have seen 10 or 20 percent depreciation, and we have seen 55 percent."

Buying and bailing will continue to fuel the state’s bankruptcy filings, DeLuca said.

"There is just no point in keeping the house when you owe $350,000 and it’s worth $150,000," he said. "They can drop it into bankruptcy, rent a bigger house, and buy another house in three or four years."

Lionel Sawyer & Collins attorney Rodney Jean also said he hasn’t seen his commercial bankruptcy business slow down in the last year.

"The level of commercial filings has not gone down," Jean said. "In fact, they have probably gone up, from what I’ve seen."

The majority of the business bankruptcies Jean sees involve real estate in some way. Typically, those include strip malls and office buildings.

"I have seen more bankruptcies where the developer was conservative in their financing, and they are still upside-down," Jean said.

The nation recorded 1.55 million filings in 2010, an 8 percent increase from 2009 and a far slower growth rate than the 32 percent jump recorded in the year before and the 33 percent jump the year before that.

At the law firm Mayer & Newton in Knoxville, Tenn., staff members continue to work six days a week to handle the massive bankruptcy caseload. But filings there have leveled off, and partner John Newton said the firm decided it did not need to replace an attorney who left about a year ago.

He said the economy in Tennessee, while still challenging, appears stabler than economies in other parts of the country. And he said many of the people who need relief from their debts have already gone through bankruptcy.

"I think we’ve sort of turned the corner," he said.

Numbers showed stark regional differences. Thirteen states recorded an annual decline, mainly in the South, with West Virginia leading the way with a 10 percent drop in cases. The West, however, showed growth in filings, with numbers rising in places like Hawaii (22 percent), Utah (19 percent), California (19 percent) and Arizona (18 percent).

Tracy Compo of Tucson, Ariz., said her family’s financial troubles began about three years ago when her husband could no longer get overtime at work and mortgage payments became too costly. They tried unsuccessfully to get a mortgage modification before leaving the house to foreclosure.

Since then, they’ve tried to regain financial strength by selling their possessions — jewelry, clothes and anything else that could help pay the bills — but credit card debt has continued to mount. In December, they filed for bankruptcy in hopes of getting a fresh start.

"It’s very depressing," said Compo, a 32-year-old mother of three. "It’s degrading — like you’ve just lost all sense of control. I hate it. I’m embarrassed by it."

Bankruptcy filings have had a volatile decade, with a surge to records highs in 2005 as filers rushed to make their claims before Congress overhauled the system. Lawmakers made bankruptcy filings more cumbersome, and, as a result, more costly, amid concerns that some consumers were gaming the system to escape debts.

Immediately after the law change, bankruptcy filings sank before steadily climbing again. Observers attributed the continuing rise partly to an expected rebound after the shock of the 2005 law, and partly to consumers’ financial conditions. The number of filings in 2010 matched the tally for 2004 — one of the highest-ever years before the spike attributed to the law change.

"That is kind of the ‘natural’ level of filings in the kind of the economy we have," said Katie Porter, a professor at the University of Iowa College of Law. "We have a lot of debt and we have a lot of volatility. When you combine those things together, the debt makes it hard for people to withstand a shock to the system."

Those shocks are frequently job losses or medical bills, she said.

The return of bankruptcy filings to their pre-2005 levels also raises the question of how much the law changes accomplished. Porter said the law appears to have done little more than add paperwork and raise the cost of bankruptcy.

Bob Lawless, a University of Illinois College of Law professor who tracks bankruptcy data, said the difficulty in accessing consumer credit over the past couple years may be helping limit the number of people overly burdened by debt. He expects filings to be slightly lower in 2011.

Las Vegas lawyer Kyle Stephens said it was possible that Nevada filings could drop in 2011, but maybe not for the right reasons,

"I think, compared to 2008 and 2009, they may be down now," Stephens said. "But that may be because so many people have already filed."

Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286. The Associated Press contributed to this report.

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