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Assets, Debt Dip in Bankruptcy Filings

Copyright © 2012 Albuquerque Journal

Consumers headed into U.S. Bankruptcy Court last year with substantially fewer assets and less debt than in 2010, a possible sign of the toll that the struggling economy has taken on some families, according to a just-released federal report.

New Mexicans in particular were living further beyond their means, on average, than consumers filing for bankruptcy court protection in the nation as a whole.

Overall consumer assets dropped 23 percent from 2010 to 2011 while consumer liabilities, basically debt, dropped 25 percent over the same period, according to the report on consumer bankruptcies required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The drops can partly be explained by the 11 percent decrease in the number of bankruptcy filings in which most or all of the debt was household debt, as opposed to business debt.

And the drop in assets, in particular, can also be traced to the continued trend of decreasing home values, said Albuquerque lawyer Dave Giddens, who practices bankruptcy, foreclosure and business law. A home is the biggest asset.

“Contrary to reports you see in the media, every time a (home) appraisal gets done, the value inevitably drops,” Giddens said.

In New Mexico, real property, basically a home, is an even more significant asset, accounting for 77 percent of all assets listed by consumers in bankruptcy filings compared to 60 percent nationwide in 2011, the report shows.

Consumers who filed in New Mexico last year had on average a monthly income of $2,549, lower than the national average of $2,781. Average monthly expenses for filers in the state was $2,942, higher than the national average of $2,837.

The difference or spread between monthly income and expenses was a negative $393 in New Mexico, which appears to be one of the higher negative spreads in the country. The average difference nationwide was a negative $56 a month.

It should be noted that filers in many bankruptcy courts around the country report monthly income higher than monthly expenses.

The report’s most surprising finding, at least at face value, was that 28 percent of the consumer bankruptcies filed nationwide last year were repeat filers.

The high percentage is likely the result of consumers filing do-it-yourself petitions, officially called “pro se,” because they can’t afford or want to avoid legal fees, Giddens said.

The 2005 act was a major overhaul of the bankruptcy system that complicated the laws and procedures governing the process. Do-it-yourself petitions tend to fail for technical reasons, forcing the consumer to hire a lawyer and try again, Giddens said. The net result is a repeat filing of what is essentially the same bankruptcy.