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VOL. 123 | NO. 140 | Friday, July 18, 2008

A Time to Chill

Chapter 13 bankruptcies up only slightly in Q2; Chapter 7s more than 20 percent

By Andy Meek

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POSTER CHILD: The Downtown hot spot Pat O’Brien’s figured prominently in second quarter bankruptcy filings. – PHOTO BY ANDY MEEK

Only a few hours remained in May before a foreclosure sale of Pat O’Brien’s-Memphis was set to occur on the southwest steps of the Shelby County Courthouse.

So in an attempt to beat the clock and keep the doors open to the popular Downtown hot spot, the ownership of the restaurant at 310 Beale St. did what thousands of other debtors – especially those who are trying to stave off a foreclosure – did in the second quarter. They turned their attention to One Memphis Place, where the local bankruptcy courts operate, and promptly filed for Chapter 11 bankruptcy petition.

That bankruptcy petition, which stopped the foreclosure, showed Pat O’s as having between one and 49 creditors, estimated assets of between $50,001 and $100,000 and liabilities of between $1 million and $10 million. The filing remains pending in U.S. Bankruptcy Court for the Western District of Tennessee.

Against the trend

The Pat O’s bankruptcy filing was part of an upswing in Chapter 11 bankruptcy filings in the second quarter, according to The Daily News Online, www.memphisdailynews.com. The number of Chapter 11 filings climbed from five (Q2 2007) to 11 (Q2 2008).

Chapter 11 or “reorganization” bankruptcy cases are usually filed by cash-strapped businesses in an attempt to become profitable again. The business is allowed to stay open, but any major decisions must be approved by the court.

Each quarter in West Tennessee, the number of bankruptcy filings represents a long line of personal and consumer debtors who find themselves in a position similar to that of the Downtown restaurant. During second quarter 2008, however, the

number of personal debtors who sought bankruptcy protection did something unusual in West Tennessee: That number really didn’t change much.

Working the angles

Bankruptcy filings in West Tennessee climbed a scant 2.1 percent in Q2 2008. They rose from 4,118 filings in Q2 2007 to 4,203 in the second quarter of this year.

Compare that with the second quarter spike of 20.4 percent between Q2 2006 and Q2 2007, when the filings jumped from 3,419 to 4,118.

The U.S. Bankruptcy Court has offices in Memphis and Jackson, and debtors can come from anywhere to file in the district.

When bankruptcy court professionals survey the financial landscape to determine what’s driving the latest filing trends, the culprit they point to often is the tight housing market. Chapter 13 bankruptcy trustee George Stevenson has been pushing a loss-mitigation program he spearheaded to help people avoid a bankruptcy filing when the cause is mainly mortgage debt.

The intent is to rework the terms of the home loan, keep the debtor in their home, avoid a bankruptcy filing and keep payments flowing to mortgage owners.

“The law is when you take bankruptcy, your primary residence can be protected, but it can only be protected at whatever your current arrangement is with the lender,” said Beanie Self, executive director of the Southeast Memphis Community Development Corp. “So what he’s trying to do is work out deals with individual lenders.”

Paying down debt

The latest totals show a plateau of debtors filing Chapter 13 or “wage-earner” bankruptcy petitions. The totals crept up only 2.4 percent, from 3,185 (Q2 2007) to 3,262 (Q2 2008).

Under Chapter 13 bankruptcy protection, a debtor with a regular income above a certain threshold is put into a court-approved repayment plan to pay back a portion of their debts within a given time.

That method of bankruptcy is the kind most commonly filed in West Tennessee.

“I’ve been working on this for four years, because I kind of sensed that this problem was coming,” Stevenson said about the new program. “And unfortunately they don’t bring out the fire department until after the fire gets going.

“I’m also involved nationally with a task force to try and get this thing implemented in other places. I met last month in Washington, D.C., with a group of people. And we talked about how to implement this program more across the board and get servicers to be more receptive to people who are in bankruptcy.”

Largest aggregate

Chapter 7 or “liquidation” bankruptcy is the other major type of bankruptcy filing. It allows the most hard-pressed debtors in some cases to wipe away most of what they owe.

Chapter 7 filings were up 20.4 percent in Q2 2008, according to The Daily News. The totals climbed from 681 (Q2 2006) to 928 (Q2 2007) to 1,117 (Q2 2008).

Frayser’s 38127 ZIP reported 261 bankruptcies among all chapters in the first quarter, a nearly 6 percent decrease from the same time a year ago. The Westwood ZIP code of 38109 followed with 258 bankruptcies (a roughly 22.3 percent increase from Q2 2007), and Parkway Village’s 38118 ZIP had 210 (only a few less than Q2 2007’s 214).

Among Chapter 7 bankruptcies, ZIPs with the highest count included 38128, with 44 filings; Westwood’s 38109, with 43; and Bartlett’s 38134, with 38.

Among Chapter 13s, the highest counts were in 38127, with 225; 38109, with 214; and 38118, with 176.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 88 88 7,923
MORTGAGES 119 119 8,904
FORECLOSURE NOTICES 5 5 1,133
BUILDING PERMITS 253 253 17,320
BANKRUPTCIES 42 42 5,201
BUSINESS LICENSES 35 35 3,417
UTILITY CONNECTIONS 30 30 2,298
MARRIAGE LICENSES 25 25 1,617