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Originally published Tuesday, January 4, 2011 at 8:25 PM

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Surge in bankruptcy filings shows signs of slowing down

The growth in bankruptcies around the country slowed significantly in 2010 from its breakneck pace in recent years, with about a dozen states recording a decline in filings from consumers and businesses, according to an Associated Press tally Tuesday.

The Associated Press

RALEIGH, N.C. — The growth in bankruptcies around the country slowed significantly in 2010 from its breakneck pace in recent years, with about a dozen states recording a decline in filings from consumers and businesses, according to an Associated Press tally Tuesday.

Filings collected from the nation's 90 bankruptcy districts showed 113,000 bankruptcies in December, down 3 percent nationwide from the same month a year ago. That followed a similar year-over-year decline for the month of October. It had been four years since an individual month showed such an improvement.

In total, the nation recorded 1.55 million filings in 2010, an increase of 8 percent from 2009 and a far slower growth rate than the 32 percent jump recorded in the year before and the 33 percent jump the year before that.

At the law firm Mayer & Newton in Knoxville, Tenn., staff members continue to work six days a week to handle the massive bankruptcy caseload. But filings there have leveled off, and partner John Newton said the firm decided it did not need to replace an attorney who left about a year ago.

He said the economy in Tennessee, while still challenging, appears to be more stable than other parts of the country. And he said many of the people who need relief from their debts have already gone through the bankruptcy process.

"I think we've sort of turned the corner," he said.

Numbers indicated stark regional differences. Thirteen states recorded an annual decline, mainly in the South, with West Virginia leading the way with a 10 percent drop in cases. The West, however, indicated ongoing growth in filings, with numbers rising in places like Hawaii (22 percent), Utah (19 percent), California (19 percent) and Arizona (18 percent). Washington's was between 6 percent and 10 percent, according to an AP graphic made for this report.

Bankruptcy filings have had a volatile decade, with a surge to records highs in 2005 as filers rushed to make their claims before Congress overhauled the system. Lawmakers made bankruptcy filings more cumbersome — and, as a result, more costly — amid concerns that some consumers were taking advantage of the system to escape debts.

Immediately after the law change, bankruptcy filings sank before steadily climbing again. Experts attributed the ongoing rise in part to an expected rebound after the shock of the 2005 law, and in part due to the financial conditions of consumers. The number of filings in 2010 matched the tally for 2004 — one of the highest-ever years before the spike attributed to the law-change.

The return of bankruptcy filings to their pre-2005 levels also raises the question of how much was accomplished by the law changes. Porter said the law appears to have accomplished little more than to make filing for bankruptcy more costly because of extra paperwork.

Bob Lawless, a professor at the University of Illinois College of Law who tracks bankruptcy data, said the difficulty in accessing credit over the past couple years may be starting to limiting the number of filings.

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