By Bill Rochelle and Timothy R. Homan
Bloomberg features J. Gregory Barrow
Sept. 3 (Bloomberg) — Slumping labor and real estate markets, high gas prices and a cost of living increase helped U.S. bankruptcy filings reach the highest daily rate in August since a 2005 law made it harder for Americans to shed debts.
The home states of Joseph Biden and Sarah Palin, the vice presidential candidates for the Democratic and Republican parties, recorded the largest increases from July to August. Filings in Delaware and Alaska were up 36 percent and 34 percent, respectively.
The 94,000 total bankruptcy filings in August put the country on a pace to record 1.06 million petitions for all of 2008, a 28 percent increase over 2007, according to data compiled from government records by Automated Access to Court Electronic Records, a service of Jupiter eSources LLC in Oklahoma City. If the pattern holds, the year-end total will reflect a 79 percent leap over 2006.
The uptick in filings isn’t expected to halt anytime soon, according to Jupiter’s president, Mike Bickford, who said “we will see a steady increase throughout the remainder of 2008.”
Business bankruptcies continue increasing this year at an even steeper rate. Filings for bankruptcy reorganization may reach 9,100 this year, up 46 percent from 2007 and 82 percent more than 2006. Commercial filings under all bankruptcy categories at the current rate could total 60,000 in 2008, twice the number in 2006, according to the AACER service.
States with the worst real estate markets are recording the highest bankruptcy increases over 2007. California, Arizona and Nevada are the top three. Delaware is next, followed by Florida.
`National Mortgage Situation’
Bickford attributed the 38 percent jump in Chapter 11 filings between July and August to “retailers, home builders and others impacted by the national mortgage situation.”
The U.S. economy expanded at a 3.3 percent annual pace in the second quarter, compared with an initial estimate of 1.9 percent, the Commerce Department reported last week. The export-driven expansion is likely to fade as Europe and Japan head toward recessions.
U.S. consumers are reining in spending as they face falling home values and dwindling job prospects. The number of Americans collecting unemployment benefits rose to 3,423,000, a five-year high, the Labor Department said last week. The median price for a single-family home dropped 7.6 percent in the second quarter, the National Association of Realtors said in August.
The cost of living climbed 5.6 percent in the year ended in July, the fastest pace in 17 years, while prices for goods excluding food and energy increased 2.5 percent, the Labor Department said last month. The average cost for a gallon of regular gasoline in August was $3.69, up from $2.78 a year earlier, according to the Automobile Association of America.
Economic pressure on consumers is reflected in companies filing for reorganization. Retailers seeking Chapter 11 protection include Linens ‘n Things Inc., Boscov’s Inc., Whitehall Jewelers Inc., Mervyn’s LLC and Goody’s Family Clothing Inc.
“The next hits will be discretionary income sorts of businesses, like restaurant and hospitality,” said Greg Barrow, founder and managing director of General Capital Partners LLC, a Denver-based investment bank advising financially distressed companies with assets from $10 million to $50 million.
Tennessee and Nevada are first and second among the states in bankruptcy filings per capita, trailed by Georgia, Indiana and Alabama. In the two leading states, there were about seven filings in August for every 1,000 in the population.
Filings by consumers soared just before revisions to the law took effect in October 2005 and made it more difficult to qualify for bankruptcy.
In the two weeks before the new law, 630,000 Americans sought bankruptcy protection, bringing total filings in 2005 to a record 2.1 million. There were 590,500 filings in 2006 and 827,000 in 2007. More than 700,000 bankruptcy petitions were filed in 2008 through the end of August.