The number of bankruptcy filings in Eastern Washington fell last year for the first time since 2006. The decline was slight, however, and Spokane-area attorneys say they remain busy with a large volume of clients struggling to remain solvent.

Consumers and businesses filed 7,182 bankruptcy petitions last year in the U.S. Bankruptcy Court's Eastern District of Washington, which is based in Spokane. That's down 52 filings, or 0.7 percent, from 2009. Of those 2010 filings, 220 were business filings, down 9.8 percent from 244 business filings during the previous year.

"That's consistent with what we're hearing, which is that things are starting to stabilize," says Kevin O'Rourke, a bankruptcy attorney who is a partner at Southwell & O'Rourke PS, of Spokane. "Things are in fact starting to level off and starting to improve."

The statistics, however, come as a surprise to Jed Morris, a partner at Spokane-based Lukins & Annis PS who focuses on representing creditors—typically banks—in bankruptcy cases.

"I would have guessed business bankruptcies were up for 2010," he says. "What I saw in my practice was a larger number of business bankruptcies in 2010 than in the several years preceding."

Supporting Morris' observation was a small increase in bankruptcy filings last year in Spokane County, one of 20 counties east of the Cascade Mountains that comprise the Bankruptcy Court's Eastern District. In all, consumers and businesses filed 2,573 bankruptcy filings in Spokane County last year, up 64 filings, or 2.5 percent, from 2009.

In the Eastern District as a whole, the slight decrease in bankruptcies follows three consecutive years of increased activity. The last time the district experienced a decrease in bankruptcies, the number of filings fell to 3,350 in 2006, from 11,506 the previous year. That precipitous drop, however, wasn't related to the economy, Morris says. The federal Bankruptcy Abuse and Consumer Protection Act, which was designed to make it more difficult for individuals to file for bankruptcy under Chapter 7, went into effect in late 2005, and Morris says throngs of people who had been on the fence about filing for bankruptcy decided to do so before the new law took effect.

During the four-year period prior to the spike in activity in 2005, the number of bankruptcy filings in the Eastern District averaged just above the 10,000 mark.

With the tighter laws governing bankruptcies and the economic upheaval of recent years, it's unclear what level of bankruptcy activity should be considered typical for the Eastern District, O'Rourke says.

"There needs to be some time lapse before we see that rate stabilize," he says.

Grant Forsyth, an economics professor at Eastern Washington University, says a significant drop in bankruptcy filings isn't likely to occur until the job market improves.

"The key indicator in bankruptcy is what's going to happen in the labor market, in terms of job creation," Forsyth says. "The longer the labor market takes to recover, the more time there is for people to fall into a situation where bankruptcy is the only option."

North Idaho filings

Year-end statistics aren't available yet for the U.S. Bankruptcy Court District of Idaho's Coeur d'Alene court, but figures for the first 11 months of 2010 suggest a strong increase in filings there. Through November, the Coeur d'Alene court reported 1,359 bankruptcy filings, up 18 percent compared with the year-earlier period.

Bruce Anderson, a partner in the Coeur d'Alene office of Sandpoint-based law firm Elsaesser, Jarzabek, Anderson, Elliot & MacDonald Chtd., typically represents debtors in business bankruptcy filings. He says many of the companies that are considering bankruptcies are related in some way to real estate and construction.

"Anybody associated in any matter with construction or development, they are suffering right now—anyone from investors to subcontractors," Anderson says.

He expects bankruptcy activity in the Coeur d'Alene area to continue at the current clip through this year.

"I talk to a lot of people in the real estate industry, and nobody is able to tell me when it's going to get better," Anderson says. "Nobody knows."

Morris says he too expects bankruptcy activity to remain strong this year.

"We haven't worked our way through all of the business loans and business failures yet," he says. "There's going to be plenty of work in the bankruptcy and foreclosure arenas this year."