Bankruptcies up sharply in region

Bankruptcy filings in New London County more than doubled in the third quarter of the year compared to the same period last year, according to statistics released Monday by a real estate tracking firm.

"It shows we have a lot of people on hard times," said Steven P. Lanza, a University of Connecticut economist and editor in chief of The Connecticut Economy.

The Warren Group, publisher of The Commercial Record, reported that the region recorded 205 bankruptcy filings between July and September, a big jump from the 91 recorded last year in New London County during the same months.

Chapter 7 and Chapter 13 personal bankruptcy filings locally were up even more dramatically than for the state as a whole. The state filings rose from 1,773 last year in the third quarter to 2,569 this year - an increase of about 45 percent.

"The dramatic increase in bankruptcy filings shows what effect job losses and salary cuts have had on Connecticut residents," said Timothy M. Warren, chief executive of The Warren Group, in a written commentary.

David Falvey, an attorney with the Action Advocacy Law Office in Groton, said rising bankruptcies are a legacy of increasing unemployment and underemployment. The national unemployment rate inched close to 10 percent last month, and New London County's figure is near 8 percent, about 50 percent higher than at this time last year.

"People are having their hours cut back seriously," Falvey added.

Connecticut already has more Chapter 7 bankruptcies this year than it had all of last year. The Connecticut filings are running about 50 percent higher than at the same time last year; a trend similar to New London County's, which has year-to-date total bankruptcies of 527 compared to 352 last year.

"Many are struggling to pay their bills and have accumulated tremendous debt by relying on credit cards to pay for basic living expenses," Warren said.

Chapter 7 bankruptcies have taken a particularly sharp turn upward, with a third-quarter increase of nearly 65 percent in Connecticut and a near tripling in New London County. Chapter 7 protection - the most drastic form of personal bankruptcy - allows individuals and couples to save their homes and eliminate virtually all lingering debt, excluding mortgages and other secured properties, by selling off any non-exempt assets.

Chapter 13 - a milder bankruptcy option available to wealthier people who pay back part of the debt over a three- to five-year period - is being used less often than last year. Chapter 13 filings locally in the third quarter were about a third of what they had been last year, while statewide they were down about 25 percent.

Connecticut has recorded more than 7,000 total bankruptcies so far this year, with more than 500 of those in New London County.

Only in 2005, the first year in which The Warren Group started keeping statistics, were there more bankruptcies in Connecticut - a total of 13,259. But 2005 was an unusual year, because a more restrictive federal bankruptcy law that took effect the following year caused an avalanche of filings.

Lanza, the UConn economist, said the bankruptcy numbers should be put in some perspective, saying they are not out of line with the rest of the country and have gone hand in hand with rising foreclosure rates. He predicted an easing of the numbers only when employment trends and the housing market start to turn around.

"You are not going to see ... labor markets turn around any time soon," he said, though the real estate market appears to be "flattening out and scraping bottom."

The U.S. economy is expected to show positive growth in the third quarter, marking the end of a long recession, but Lanza said "the effects are likely to linger for months and even years."

The bottom line is that bankruptcy-filing increases of 50 to 60 percent may start to moderate in the coming months, he said, but it will take a while before increasing consumer confidence helps turn the economy around and produce jobs with staying power.

l.howard@theday.com