NEW ORLEANS (AP) — Sharply higher numbers of people and businesses in Louisiana sought refuge from debt in federal bankruptcy court, crippled by the housing collapse, credit cards and sharply lower retail sales.
According to the Administrative Office of United States Courts, there were 18,268 bankruptcy filings in the state from Oct. 1, 2008, through Sept. 30, 2009, up 18 percent from the previous year’s filings of 15,412.
The number of businesses heading for court exploded during the most recent year. There were 844 business filings in Louisiana for 2008-09, up 38.4 percent from 610 for 2007-08.
During 2008-09, there were 17,424 nonbusiness filings, up 17.7 percent from the previous year’s 14,802.
Nationally, total bankruptcies rose 34 percent over the same time, with business filings jumping 51 percent and individual filings going up 33.9 percent.
Within the state, filings in the Eastern Judicial District of Louisiana — including the New Orleans metropolitan area — shot up 35.2 percent. Filings in the Middle Judicial District — mostly encompassing the Baton Rouge region, which has had strong growth since the 2005 hurricanes — rose 7.8 percent during the recession year.
In the Western Judicial District, which covers the rest of the state, including Lake Charles, Alexandria, Shreveport-Bossier City, Monroe and far-flung rural areas, filings rose 15.3 percent during the most recent year.
David Kervin, a New Orleans bankruptcy lawyer, said that although credit cards get much of the blame for the current round of misery for consumers, that debt is a secondary factor in the rash of filings behind home loans — many of them for amounts far above income levels and issued to subprime customers.
“The recipe we see for disaster is they buy more house than they can afford and get a second mortgage to buy boats, cars and other items. That’s what often pushes them over the edge,” he said.
Kervin said the vast majority of business bankruptcies seen by his firm involve either small retail stores or personal businesses involved in real estate acquisitions. In many cases, fundamentally poor business plans caught up with the owners once the economy fell.
“A lot of them were in retail, such as furniture,” he said. “When the economy was going, they were rocking along. Then, suddenly, they had no customers.”
Kervin said most of the average credit card debt brought in by his clients ranges from $15,000 to $30,000.
Kate Williams, vice president of financial literary for Money Management International, a nonprofit, multistate consumer credit counseling service, said the numbers in Louisiana likely would have been worse except for hurricane recovery spending in the state. She also said bankruptcy numbers typically lag behind the economic numbers — likely meaning Louisiana’s bankruptcy count could rise even more in 2010.
William’s said the banking industry’s willingness to issue home loans beyond the longtime traditional standard — an amount no more than 2.5 times an owner’s annual salary — put a squeeze on consumers, many of whom were simultaneously running up credit card debt and frequently trading vehicles and carrying over old loan balances to new loans.
The stock market crash in late 2008 spelled out another problem — many people did not have adequate liquid savings.
“We all wanted to be investors,” Williams said. “No one wanted to be a saver. People lost money they couldn’t afford to lose.”