- Associated Press - Tuesday, January 4, 2011

RALEIGH, N.C. | The growth in bankruptcies around the country slowed significantly in 2010 from its breakneck pace in recent years, with about a dozen states recording a decline in filings from consumers and businesses, according to an Associated Press tally Tuesday.

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 ago. That followed a similar year-over-year decline for the month of October. It had been four years since an individual month showed such an improvement.

In total, the nation recorded 1.55 million filings in 2010, an increase of 8 percent 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 a lawyer that left about a year ago.

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

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

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 taking advantage of the system to escape debts.

Immediately after the law change, bankruptcy filings sank before steadily climbing again. Experts attributed the ongoing rise in part to an expected rebound after the shock of the 2005 law, and in part due to the financial conditions of consumers. 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.

Bob Lawless, a professor at the University of Illinois College of Law 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.


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