Fewer Colorado consumers and businesses filed for bankruptcy protection last year, reversing a five-year run of annual increases.
The U.S. Bankruptcy Court’s Colorado district reported 29,994 cases last year, down 7.7 percent from the 32,509 cases filed in 2010. The decline was the first since 2006, when filings dropped sharply after the implementation of stricter bankruptcy rules.
Business filings fell 16.2 percent, from 1,349 in 2010 to 1,130 in 2011. Personal filings fell from 31,160 to 28,864, a 7.4 percent drop.
While an improving economy helped ease financial pressures on debtors last year, the decrease could also signal the more difficult time that creditors are having in collecting from borrowers, experts said.
“Generally speaking, creditors are not going after debtors like they could be,” said Brad Bolton, the bankruptcy court’s chief clerk.
That reflects, in part, a lack of anything to pursue.
“There are no wages to garnish; there are no assets to attach to,” he said. “Creditors lay back until there is something to go after.”
That has been the pattern in past recessions, when filings accelerated during the recovery, Bolton said.
What is different in this economic cycle is that the rules now require those earning more than the median income to pursue a repayment plan under Chapter 13.
Higher-income debtors must repay their obligations based on income under Chapter 13, which has risen from 10 percent of filings in 2004 to nearly 17 percent last year, Bolton said.
William Foster, a bankruptcy attorney with Foster Law Group in Denver, said he saw more filings by higher-income borrowers last year.
“Higher-income individuals are able to get by longer, but eventually it catches up with them,” he said.
Some higher-income filers find they aren’t able to or are unwilling to make the lifestyle adjustments required by the stricter filing category.
That has resulted in more Chapter 13 plans failing, which puts debtors back to square one and subjects them to garnishment and full repayment, Foster said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com or
