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Boomtime bankruptcies dampen area prosperity
Regional bankruptcies decreased by 70 percent after a more restrictive federal law took effect in late 2005,
by Bob Campbell
Midland Reporter-Telegram
- Debtors' last ditch defense getting more prevalent even as the Permian Basin enjoys good economy
By Bob Campbell
Staff Writer
The giddy environment of an oil boom is no guarantee financial bugaboos will not arise.
In fact, it may make them harder to dodge.
Regional bankruptcies decreased by 70 percent after a more restrictive federal law took effect in late 2005, but two Midland lawyers and an Amarillo economist say the debtor's last ditch defense is making a comeback even as oil prices shimmer in the stratosphere and people relish a return to the high times of old.
Attorney Jeanne Morales said a combination of predatory lenders and citizens' "living at the edge of their means" when a big expense or income interruption comes largely are to blame.
"These are not bums under the bridge," she said. "I've filed for doctors, lawyers, teachers and firefighters. Most are married people who own a house and their balancing act goes crashing down when they lose a job or there is a divorce or medical problem.
"You have unsophisticated borrowers paying enormous interest rates designed to keep them entrapped."
Morales said Texas' usury laws are circumvented by short term lending rules and statutes requiring cooperation with the "shady" practices of credit companies in Delaware and South Dakota.
"An awful lot of predatory lending goes on with home equity loans and sub-prime mortgages putting everybody in as much debt as they can," she said. "The 30-day car title payday loans and unsavory credit cards keep rolling over and going crazy."
Morales said about 1,000 bankruptcies a year were being filed at the U.S. Bankruptcy Clerk's Office here before the Bankruptcy Abuse Prevention & Consumer Protection Act took effect on Oct. 17, 2005.
She and Midland attorney Al Martinez said the law cut that by 70 percent, mostly the Chapter 7 and Chapter 13 filings consumers use, but the trend is reversing itself. The local Western District of Texas clerk's office takes cases from 16 counties while Howard County's are registered in Northern District offices in Abilene and Lubbock.
"The numbers are creeping back up and I'm on pace to file twice as many as I did last year," said Martinez. "I've filed 19 this year and have eight in the pipeline."
He said Midland has not evaded the national sub-prime mortgages crash caused by adjustable rates for homebuyers with credit problems. "I noticed them as far back as 2005," Martinez said.
"A lot of banks are doing home equity loans for people to finance their way out of Chapter 13s. There is a lot going on with that even here."
He said the credit counseling required by the new law for people to become eligible to file has not proved worthwhile, but the mandatory financial management classes for those whose applications are accepted have been helpful.
Martinez cited a Chapter 13 filer who then wanted to borrow for a big screen TV and another whose $1,100 monthly diesel pickup payment was bigger than his house payment. "The law didn't do anything about why people go bankrupt," he said.
"It's almost a sin in our society to be frugal."
Amarillo economist Karr Ingham said a boom can create problems when people making high wages become elated and spend extravagantly.
However, he said the oil and gas mavens of the Permian Basin were chastened by the mid-'80s bust and have prudently managed the industry's comeback since 2002-03.
"Bankruptcy doesn't necessarily track with overall economic conditions in a given area," Ingham said. "There are people with high incomes who outspend it and rack up sizable debt.
"The people there have a long memory and I think the industry and community in Midland and Odessa have been careful and even a little bit cautious. When times are good, it might be time to look at economic development and make sure it continues, but I believe that's happening."
Bob Campbell can be reached at campbell@mrt.com.
By Bob Campbell
Staff Writer
The giddy environment of an oil boom is no guarantee financial bugaboos will not arise.
In fact, it may make them harder to dodge.
Regional bankruptcies decreased by 70 percent after a more restrictive federal law took effect in late 2005, but two Midland lawyers and an Amarillo economist say the debtor's last ditch defense is making a comeback even as oil prices shimmer in the stratosphere and people relish a return to the high times of old.
Attorney Jeanne Morales said a combination of predatory lenders and citizens' "living at the edge of their means" when a big expense or income interruption comes largely are to blame.
"These are not bums under the bridge," she said. "I've filed for doctors, lawyers, teachers and firefighters. Most are married people who own a house and their balancing act goes crashing down when they lose a job or there is a divorce or medical problem.
"You have unsophisticated borrowers paying enormous interest rates designed to keep them entrapped."
Morales said Texas' usury laws are circumvented by short term lending rules and statutes requiring cooperation with the "shady" practices of credit companies in Delaware and South Dakota.
"An awful lot of predatory lending goes on with home equity loans and sub-prime mortgages putting everybody in as much debt as they can," she said. "The 30-day car title payday loans and unsavory credit cards keep rolling over and going crazy."
Morales said about 1,000 bankruptcies a year were being filed at the U.S. Bankruptcy Clerk's Office here before the Bankruptcy Abuse Prevention & Consumer Protection Act took effect on Oct. 17, 2005.
She and Midland attorney Al Martinez said the law cut that by 70 percent, mostly the Chapter 7 and Chapter 13 filings consumers use, but the trend is reversing itself. The local Western District of Texas clerk's office takes cases from 16 counties while Howard County's are registered in Northern District offices in Abilene and Lubbock.
"The numbers are creeping back up and I'm on pace to file twice as many as I did last year," said Martinez. "I've filed 19 this year and have eight in the pipeline."
He said Midland has not evaded the national sub-prime mortgages crash caused by adjustable rates for homebuyers with credit problems. "I noticed them as far back as 2005," Martinez said.
"A lot of banks are doing home equity loans for people to finance their way out of Chapter 13s. There is a lot going on with that even here."
He said the credit counseling required by the new law for people to become eligible to file has not proved worthwhile, but the mandatory financial management classes for those whose applications are accepted have been helpful.
Martinez cited a Chapter 13 filer who then wanted to borrow for a big screen TV and another whose $1,100 monthly diesel pickup payment was bigger than his house payment. "The law didn't do anything about why people go bankrupt," he said.
"It's almost a sin in our society to be frugal."
Amarillo economist Karr Ingham said a boom can create problems when people making high wages become elated and spend extravagantly.
However, he said the oil and gas mavens of the Permian Basin were chastened by the mid-'80s bust and have prudently managed the industry's comeback since 2002-03.
"Bankruptcy doesn't necessarily track with overall economic conditions in a given area," Ingham said. "There are people with high incomes who outspend it and rack up sizable debt.
"The people there have a long memory and I think the industry and community in Midland and Odessa have been careful and even a little bit cautious. When times are good, it might be time to look at economic development and make sure it continues, but I believe that's happening."
Bob Campbell can be reached at campbell@mrt.com.
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KMB wrote on Aug 11, 2008 8:05 AM:
Clearly there is an attempt by many to avoid bankruptcy. One way is in becoming a lender, which would explain the exponential growth in the numberof financial institutions.
At one time Midland had three banks and two savings institutions. Today there are at least three bank buildings being constructed to add to a list that is increasing at the rate of inflation. "