AP: 2009 BANKRUPTCIES UP 32 %

RALEIGH, N.C. – U.S. consumers and businesses are filing for bankruptcy at a pace that made 2009 the seventh-worst year on record, with more than 1.4 million petitions submitted, an Associated Press tally showed Monday.

The AP gathered data from the nation's 90 bankruptcy districts and found 1.43 million filings, an increase of 32 percent from 2008. There were 116,000 recorded bankruptcies in December, up 22 percent from the same month a year before.

While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws, the numbers indicate clear correlations to recession-weary regions. Arizona saw the fastest increase, a jump of 77 percent from the year before, followed by Wyoming (60 percent), Nevada (59 percent) and California (58 percent).

Emile Harmon, who owns a law firm in Tempe, Ariz., said the firm has doubled its staff to handle the surge in bankruptcy filings. The lawyers have been steadily shifting away from their other areas of business, civil lawsuits and divorce cases.

"Bankruptcy is kind of swallowing the whole practice." Harmon said. "There's little time to do other stuff."

There's also no sign that things are slowing down. Harmon said bankruptcies have been coming in waves, first with those 18 months ago who had adjustable-rate mortages, then with those who lost their jobs due to the housing downturn. Now he's finding wealthy individuals and business owners who have finally succumbed to lower incomes and shrinking home values.

"A lot of the people we see were in a really good financial position two years ago," Harmon said. "People really look at you and say, 'I can't believe I'm here.'"

For three years, filings have been steadily rising back toward levels reached early in the decade before Congress overhauled the nation's bankruptcy laws. The 2005 alterations made bankruptcy filings more cumbersome, a move that followed fears from lenders that some consumers were abusing the system to wipe away debts.

Bankruptcies surged to slightly more than 2 million in 2005 as consumers rushed to file before the new law took effect but then plummeted to 600,000 in 2006. They've been climbing ever since and in 2009 became the seventh-highest year on record, behind only the years 1998 and 2001-2005.

The 2005 spike had been preceded by a steady climb from 1.5 million in 2001 to 1.6 million in 2005.

John Pottow, a bankruptcy professor at the University of Michigan, said the return to the highs of earlier this decade illustrates the failures of the 2005 overhaul bill. He said the measure largely made filings more costly and time-consuming by forcing consumers to undergo a paperwork-heavy test to determine eligibility for Chapter 7 bankruptcy and adding liability for attorneys who provide help.

"It never made sense in the first place that you could change the laws and make all these bankruptcies go away," said Pottow, who would like to see the 2005 law changes repealed. "If people are encountering financial distress, you can only scare them away for so long before they come back again."

While every state saw a rise in bankruptcies, Alaska (up 12 percent), Nebraska (12 percent) and North Dakota (14 percent) performed best.