Personal bankruptcies easing after dramatic increase in '09

As the second full year of the worst recession since the Great Depression came to a close, personal bankruptcies in the region increased 45 percent compared to 2008, according to new statistics reported Friday by The Warren Group.

New London County's increasing tide of personal bankruptcies was significantly higher than for the rest of the state, which ended the year up 28 percent.

But the fourth quarter saw a decrease in bankruptcy filings both locally and statewide, indicating trends were easing, said University of Connecticut economist Steven P. Lanza.

"All indications point toward the bankruptcy picture stabilizing," he said, "which is what you expect to see before things get better."

Statistics show that 728 personal bankruptcies were filed in New London County last year, compared with 502 the year before. But while the numbers exceeded rising bankruptcy trends in the rest of the state, New London County's personal financial failures took a slight dip at the end of the year when compared with the previous quarter.

Connecticut as a whole had 8,618 bankruptcy filings last year. Statewide and locally, bankruptcy filings in 2009 were nearly two-and-a-half times the number they were in 2006.

Only in 2005, the first year in which The Warren Group started keeping statistics, were there more bankruptcies reported 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 a flood of filings.

"Sinking home values have left most debtors unable to tap what had been one final release valve before bankruptcy - the equity in their homes," according to a commentary in The Commercial Record, published by The Warren Group.

"Job layoffs and mounting debt have forced many people to seek bankruptcy protection," added Aglaia Pikounis, a spokeswoman for The Warren Group. "The problem was compounded for many consumers when credit card interest rates skyrocketed last year."

The Warren Group said filings this year have changed dramatically when compared with years past. Chapter 7 filings, which indicate more financial distress, are double what they were in 2007 and triple the levels of 2006, according to statistics, while other types of filings, taken together, have been trending down.

Chapter 7 filings, which accounted for two-thirds of personal bankruptcies four years ago, now make up nearly 90 percent of all financial meltdowns.

But Lanza, the UConn economist, said the slowing numbers of Chapter 13 filings acually could be a harbinger of good news for the real estate market looking ahead. That's because Chapter 13 filings likely hit an upsurge during the housing crisis as people sought to protect their homes while going through bankruptcy; now, he said, the declining Chapter 13 filings may indicate problems caused by subprime loans may be easing.

What's more, quarter-to-quarter statistics show an easing trend, he said. While Connecticut bankruptcies were up 45.4 percent year-over-year for the third quarter of 2009, the increase was only 26.1 percent in the fourth quarter.

Similarly, New London County's third-quarter bankruptcies in 2009 were more than double the previous year's, but the fourth quarter saw only a 33 percent increase.

Nationwide statistics indicate 1.41 million Americans filed for personal bankruptcy last year, and increase of 31 percent from the year before.

"We're not experiencing anything in Connecticut not being felt everywhere across the country," Lanza said.

l.howard@theday.com