Increase in bankruptcies predicted for 2010

The slow real estate market is sending more small-time rental property owners into bankruptcy, according to lawyers who work in the field.

Overall bankruptcy filings in the Richmond District of the U.S. Bankruptcy Court were down about 7 percent in the fourth quarter of 2009. But with an average of 693 filings per month for the fourth quarter, the rate is still up more than 87 percent from 2008 and roughly triple the number per month in 2007.

Bankruptcy lawyers say they do not anticipate a slow-down until the unemployment rate starts to drop.

Patrick Keith
, a lawyer at the Boleman Law Firm, which only handles consumer bankruptcies, said that the final three months of the year are normally slower. He expects bankruptcy filings to increase by another 15 percent or so in 2010, especially when some of the most destitute use their tax return money to pay for the bankruptcy filing.

But the recession has not spared the middle class.

Bankruptcy lawyers say they are helping more middle- and upper-middle-class families prepare bankruptcy filings. That makes sense considering many former Circuit City, LandAmerica and Qimonda employees may have trouble finding work locally, at least jobs that pay similar wages.

“We used to see the traditional filer was a single parent living paycheck to paycheck. Now we are seeing folks with a good income, maybe two folks working — but if one loses their income, credit card companies are becoming tighter. And they aren’t able to leverage real estate and use home equity,” Keith said.

Roy Terry
, a bankruptcy attorney with the firm DurretteBradshaw who is also a Chapter 11 trustee, said that without jobs, workers can last only about six months or so.

“What I see as the big rising factor is job loss,” Terry said. “If people get another job, it’s paying a lot less than their previous one.”

The unemployment rate for Virginia rose in December to 6.9 percent, up from 6.6 percent the month before.

Terry also said he expects more commercial real estate projects to end up in bankruptcy protection.

One emerging trend is more personal households that are filing Chapter 11 instead of Chapter 13 because they have secured assets (mostly properties with loans) valued at more than $1 million. That suggests that small-time landlords with rental property are getting squeezed.

Doug Scott
represents small businesses in bankruptcy that often file as individuals because they’ve loaned their business money from accounts such as 401(k)s or Roth IRAs: “Real estate investors went out and bought residential properties. Then tenants lost jobs, and properties that were paying nicely stopped. A number of these places are under water, and a lot of folks can’t come up with the cash to keep the payments going.”

Aaron Kremer is the BizSense editor. Please send news tips to [email protected]

The slow real estate market is sending more small-time rental property owners into bankruptcy, according to lawyers who work in the field.

Overall bankruptcy filings in the Richmond District of the U.S. Bankruptcy Court were down about 7 percent in the fourth quarter of 2009. But with an average of 693 filings per month for the fourth quarter, the rate is still up more than 87 percent from 2008 and roughly triple the number per month in 2007.

Bankruptcy lawyers say they do not anticipate a slow-down until the unemployment rate starts to drop.

Patrick Keith
, a lawyer at the Boleman Law Firm, which only handles consumer bankruptcies, said that the final three months of the year are normally slower. He expects bankruptcy filings to increase by another 15 percent or so in 2010, especially when some of the most destitute use their tax return money to pay for the bankruptcy filing.

But the recession has not spared the middle class.

Bankruptcy lawyers say they are helping more middle- and upper-middle-class families prepare bankruptcy filings. That makes sense considering many former Circuit City, LandAmerica and Qimonda employees may have trouble finding work locally, at least jobs that pay similar wages.

“We used to see the traditional filer was a single parent living paycheck to paycheck. Now we are seeing folks with a good income, maybe two folks working — but if one loses their income, credit card companies are becoming tighter. And they aren’t able to leverage real estate and use home equity,” Keith said.

Roy Terry
, a bankruptcy attorney with the firm DurretteBradshaw who is also a Chapter 11 trustee, said that without jobs, workers can last only about six months or so.

“What I see as the big rising factor is job loss,” Terry said. “If people get another job, it’s paying a lot less than their previous one.”

The unemployment rate for Virginia rose in December to 6.9 percent, up from 6.6 percent the month before.

Terry also said he expects more commercial real estate projects to end up in bankruptcy protection.

One emerging trend is more personal households that are filing Chapter 11 instead of Chapter 13 because they have secured assets (mostly properties with loans) valued at more than $1 million. That suggests that small-time landlords with rental property are getting squeezed.

Doug Scott
represents small businesses in bankruptcy that often file as individuals because they’ve loaned their business money from accounts such as 401(k)s or Roth IRAs: “Real estate investors went out and bought residential properties. Then tenants lost jobs, and properties that were paying nicely stopped. A number of these places are under water, and a lot of folks can’t come up with the cash to keep the payments going.”

Aaron Kremer is the BizSense editor. Please send news tips to [email protected]

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Carter snipes
Carter snipes
12 years ago

I manage over 250 single family and smaller multi-family rental poperties primarily for smaller investors and I don’t have any clients filing bankruptcy. I think this is pure opinion. The rental market is very strong because buyers who can’t afford to buy are pushing the demand for high quality rentals up. There is more supply due to people who can’t sell, converting their property into rentals, but there is no mass filings for small investors. Bankruptcies may be up but I have not seen this trend with our portfolio. Maybe the attorney’s clients need a better Property Manager…