Filings May Rise With Job Losses, Business Failures

Bankruptcy filings, already on the rise thanks to a weakening economy, could spike higher in coming months because of Tuesday’s terrorist attacks and their aftermath, legal experts said.

Filers are unlikely to face new restrictions on declaring bankruptcy, however. Congress, which was scheduled to meet Wednesday to discuss a bankruptcy reform bill, has put the measure on hold.

Underinsured businesses involved in the disaster could fail, and people whose jobs were lost could have trouble finding new ones as the economy slows, said Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan research firm.

“It’s one thing to lose a house in a fire. You still have your income stream from your job or business,” Gerdano said. “Here, you’re out of business and there’s an interruption in your income.”

The disaster also is expected to dampen travel and tourism and could help touch off an economic recession--all factors that could increase bankruptcies, lawyers said.

Americans already have been filing for bankruptcy in record numbers this year. More personal and business bankruptcies were filed in the second quarter than in any previous three-month period, and filings were on track to beat the previous record of 1.4 million in 1998.

Concern over the high number of bankruptcies led both houses of Congress to pass bills this year that would make filing for bankruptcy more difficult and expensive. The bills have been in limbo for months, due in large part to power struggles over who would be named to the conference committee charged with working out differences between the House and Senate versions.

The conference committee was scheduled to meet Wednesday, but the meeting was canceled after the attacks. Gerdano said Congress probably will be too consumed with issues related to the terrorism to take up the bill this year.

The attacks also have heightened economic uncertainty, which could cause some businesses to throw in the towel or have trouble getting sufficient credit, said Marty Zohn, a business bankruptcy attorney in Century City.

Zohn said an increase in business failures isn’t inevitable, however. Money spent rebuilding after the 1994 Northridge earthquake helped buoy the Southern California economy, and similar spending in New York could bolster the fortunes of some companies and people.

Others said disasters, both man-made and natural, tend to push over the edge people and businesses that already were laboring under too much debt.

“Every time there’s a major disaster in the United States, the bankruptcy courts see it about six months to 12 months later,” said J. Scott Bovitz, a Los Angeles bankruptcy attorney.