By Jay Weller
Natural disasters and hurricanes and bankruptcy filings within affected areas are intuitively correlative. One would expect that the economic and property damage incurred by a hurricane, such as Hurricane Irma, that beset portions of Florida would have an impact on the number of subsequent bankruptcies filed within the affected regions.
This article will discuss the validity of this purported relation between hurricanes, natural disasters and bankruptcy filings. The article will also discuss possible remedies for those seeking to avoid the filing of bankruptcy, and the potential benefits of filing bankruptcy by those affected.
Hurricane Andrew struck south of Miami in 1992. The category 5 hurricane caused estimated damage of $25 billion dollars. At the time, Hurricane Andrew was the most expensive hurricane experienced by the United States. The majority of the impact of Hurricane Andrew was experienced in the Southern District of Florida. According to one examiner, bankruptcy filings after Hurricane Andrew actually declined following the hurricane, reflecting a national trend of declining filings of bankruptcy.
Hurricane Hugo, a category 4 Hurricane, prominently affected Puerto Rico and South Carolina, in September, 1989. At the time, Hurricane Hugo was the costliest hurricane to affect portions of the United States. Bankruptcy filings in Puerto Rico increased significantly and rapidly subsequent to Hurricane Hugo. Bankruptcy filings increased the first quarter after Hurricane Hugo, and increased for a number of quarters thereafter. However, bankruptcy filings were already increasing before the experience of Hurricane Hugo. South Carolina experienced nominal increases in bankruptcy filings in the year following Hurricane Hugo, and much higher increases in the subsequent year.
Hurricane Floyd entered Eastern North Carolina in 1999. The damage caused by Hurricane Floyd to this region was estimated at approximately $5 billion dollars. Prior to Hurricane Floyd, bankruptcy filings were in a pattern of decline in the Eastern District of North Carolina. Bankruptcy filings in the same district continued to decline for the six months following Hurricane Floyd. This was followed by subsequent increases, which reflected national patterns.
The Midwest Floods of 1993 presented heavy rainfall in the upper Mississippi River Valley, and flooding in nine States. Over 16,000 square miles were consumed by water. The damage was estimated at about $15 billion dollars.
Iowa and Missouri were the States most affected by the floods. Bankruptcy filings in these States were in decline prior to the flood and continued a downward trend for the next year. Bankruptcy filings began to increase in the second year after the flood, which was reflective of national patterns.
These prior examinations of natural disasters seem to indicate little correlative relation between the natural disasters and bankruptcy filings within the districts or regions affected. However, other factors may need examination. Many persons most deleteriously affected financially or economically by such events may leave the affected region entirely, and subsequently file bankruptcy within the new region they inhabit. Also, the necessity of filing bankruptcy may be experienced not in the time immediately following the hurricane or natural disaster, but perhaps, three or more years later.
Robert Lawless, a professor at the University of Nevada at Las Vegas, found that the most significant effects following a hurricane are experienced in the third year. Intuitively, this finding may have some merit. Hurricane themselves do not cause an individual to file bankruptcy. It is the effect of the hurricane upon the individual, financially and economically, that prompts the filing of the bankruptcy. An individual may incur charges on his or her credit cards, and assume other debt, to address damage to his or her dwelling, automobile and other possessions. However, the obligation to repay that debt is not immediate, and most persons will take measures to attempt to repay such debt obligations.
The persons most affected by a hurricane or natural disaster may also prioritize certain actions or activities over others, following such events. For many, the first concern is to repair the damage to their home and property, and ensure the safety of the habitation for themselves and immediate family. Some persons may be occupied with procuring new employment, or fleeing the region affected by the hurricane. Bankruptcy may be an option that is prioritized lower than other concerns.
Furthermore, it is true that Hurricane Irma, for example, did create significant damage to the personal and real property of a number of Florida residents. It is also true that destruction wrought by Hurricane Irma will elevate economic activity in the State of Florida. Chaos breeds economic activity. A number of public and private entities will be dramatically enriched by Hurricane Irma.
BANKRUPTCY CODE, HURRICANES AND NATURAL DISASTER
Does the bankruptcy code have any express provisions or protections to those who file bankruptcy as a consequence of a hurricane or other natural disaster? The answer is no. Following Hurricane Katrina, Justice Department’s Trustee Program, which currently oversees the management of the Bankruptcy Courts, stated it would relax the requirements for Chapter 7 bankruptcy eligibility. In order to file Chapter 7 bankruptcy, an individual must present income that is less than the median income, as determined by family size, as promulgated by the Internal Revenue Service determination of median income.
According to the recollection of the writer, this never happened. The revisions to the bankruptcy code, which implemented the means test, or median income requirements for filing bankruptcy, were instituted in the later portion of the year 2005. Hurricane Katrina beset the United States, and particularly the States of Louisiana and Mississippi at approximately the same time.
For one contemplating the filing of bankruptcy, expect no special provision or remedy based upon financial injury resulting from Hurricane Irma. Any protections proffered by the bankruptcy code are provided independent of Hurricane Irma. A bankruptcy filer may file Chapter 13 bankruptcy to accomplish a number of goals, including the arresting of a foreclosure upon their home, and in many cases, the reduction of automobile, credit card debt, and other obligations. The filer of a Chapter 7 bankruptcy may be able to eliminate or reduce unsecured debt obligations, and find other remedies through the existing device of Chapter 7 bankruptcy.
It is certain that the bankruptcy laws treat more harshly a debtor that incurs debt related to luxury purchases. A debtor that incurs debt related to the travails of Hurricane Irma will likely find that such debt will be examined less harshly than debt related to luxury purchases. Purchases relating to repairs to one’s home or property are not considered luxury purchases, within the purview of the bankruptcy code.
ALTERNATIVES TO BANKRUPTCY FOLLOWING HURRICANES OR NATURAL DISASTER
What alternative or actions may an individual pursue in an attempt to avoid filing bankruptcy? Local, State and Federal programs may be available following Hurricane Irma. Every level of government will undoubtedly offer some form of financial assistance. Any region declared a federal emergency area will be eligible for some form of assistance from FEMA. The quality or efficacy of the assistance may be substandard, arbitrary and perhaps of little benefit. However, the reader may wish to investigate the offerings of FEMA and other governmental programs.
For homeowners with casualty insurance, be aware of the terms of the policy, its restrictions and benefits. A diligent consumer should be aware of the conditions and terms of the insurance policy he or she purchases.
It is in the interest of the insurance company to pay as few claims as possible. The insurance company is motivated to limit its financial responsibilities to its policy holders. Any diligent consumer should know fully the terms of the insurance policy presented by the insurer, and its limitations. Be prepared to battle against a recalcitrant insurer, in order to receive whatever benefits one can derive from such insurance policy. A denial of insurance benefits does not necessarily mean that one is not entitled to such benefits pursuant to the insurance policy contracted with the insurer.
Jay Weller is a bankruptcy attorney practicing in the Middle District of Florida, Tampa Division. Since 1993, Weller Legal Group PA has been representing and assisting debtors in the filing of Chapter 7 bankruptcy and Chapter 13 bankruptcy. With offices in Clearwater, Lakeland and Port Richey, Florida, Weller Legal Group is able to serve most of the residents confronted by difficulties presented by debt, within the Middle District of Florida. Weller Legal Group PA is considered the premier bankruptcy law firm in the representation of debtors in both bankruptcy proceedings and in avenues outside of bankruptcy.
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