06:52 PM PST on Thursday, January 14, 2010

By LOU HIRSH
The Press-Enterprise

The recession continued to take its toll on the finances of Inland residents in 2009, especially those who run small businesses, as local bankruptcy filings jumped by more than 50 percent from the prior year.

Data from the U.S. Bankruptcy Court’s Riverside division show that local bankruptcy filings rose 54.7 percent from 2008. There were a total of 29,764 Inland filings in 2009.

The rate of increase was 57.1 percent for Chapter 7 filings, which traditionally account for the bulk of local petitions — more than 23,000 in 2009. Chapter 7 is essentially a liquidation process in which an individual or business, most often a small or mid-sized company, disposes of assets to pay creditors and shuts operations in exchange for having certain debts excused by the court.

The credit research firm Equifax noted that as of the third quarter of 2009, the Inland region ranked second in the nation for small-business bankruptcies, just behind Los Angeles and ahead of Sacramento.

Local attorneys who deal with bankruptcy issues say the collapse of the Inland housing market put pressure on small business owners, particularly those who used their homes as collateral to finance startups and expansions. When prices plummeted and their home equity dropped, many were forced into bankruptcy.

Glen Biondi, a partner in the Murrieta law firm Southwick & Biondi, said small businesses that work in and around the construction industry have been especially impacted, and the Inland situation could get worse if the commercial sector sees a wave of foreclosures similar to what has already hit residential real estate.

Biondi said he recently attended a law conference where colleagues told of their bankruptcy caseloads rising as much as tenfold during 2009 compared with 2008.

“I get at least one call per day related to bankruptcy issues,” Biondi said. “I don’t see a lot of signs right now that things will be much different in 2010.”

He said personal financial problems — for example, an inability to pay credit card bills because interest rates jumped — can develop into business problems if the card holder also runs a sole-proprietor company.

Frank Adams, a partner and chief bankruptcy counsel in the Riverside law firm Best Best & Krieger, said that with more adjustable-rate home mortgages set to mature through 2011, the Inland residential market could create yet more foreclosure-related personal and business bankruptcies. Filings might not begin to tail off until 2012, he said.

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