Bluff City Mayor Todd Malone is one of 15,693 people who have filed for bankruptcy this year in the Eastern District of Tennessee, a number that is 28 percent higher than in the previous year.

“I didn’t figure that I was the only one,” Malone said Monday.

Attributing his difficulties to a souring economy, Malone and his business, Race Scan Communications, filed for bankruptcy Dec. 18. He and his company, which Malone shuttered Oct. 22, are seeking Chapter 7 protection, commonly referred to as a liquidation bankruptcy.

In his petition, Malone reports having $118,870 in non-exempt assets, about half of which is Race Scan’s store inventory, and $616,000 worth of unsecured debts.

“I just had no choice,” Malone said Monday. “I really didn’t want to go through this, it’s an experience that I never hope to go through again.”

The Eastern District has seen the number of bankruptcy petitions jump by almost 28 percent since the 2007 total of 12,261. The bankruptcy court covers 35 counties in east Tennessee, and operates out of federal courthouses in Chattanooga, Greeneville and Knoxville.

Similar increases have been seen across the country. Between July 1 and Sept. 30 this year, 292,291 people filed for bankruptcy in the United States, representing the largest number of filings in a three-month period since the quarter ending December 2005, when the U.S. Congress passed new laws making it tougher to file.

Chapter 7 protection, which Malone is seeking, is one of four bankruptcy filing types. The others are: Chapter 11, known as a corporate reorganization; Chapter 13, an adjustment of debts of an individual with a regular income; and Chapter 12, an adjustment of debts of a family farmer with a regular income.

People seeking Chapter 7 protection are required to sell their assets and use the proceeds to pay their creditors, said Mary Russell, one of several bankruptcy trustees who work in the Eastern District.

“There has been an increase lately,” said Russell, who holds bankruptcy hearings every other week in Johnson City, Tenn. “Whereas a few months ago I might have had 10 or 20 cases on a hearing day, I’ll now have 50 or 60.”

Malone took over Race Scan’s operations in July 2003. The business is best known for supplying NASCAR fans with radio equipment tuned to the frequencies used by drivers at the Bristol Motor Speedway. But more recently, Malone said, most of the work involved installing sirens and radios in police cars and ambulances.

Malone said he started having cash-flow problems about February or March when high gas prices forced people to curtail their purchases at the race track, especially the headsets he sold through his store.

Those high prices and other cost increases also forced local governments to tighten their belts, Malone said, which meant they bought fewer new vehicles that needed sirens and radios.

After suffering losses on both fronts, Malone said, he was forced to shut his business down. It was a decision that did not come easy, he said.

Malone hired Johnson City attorney Charles Pope with the Pope Firm to handle his case and will have his first hearing, also known as a meeting of creditors, Jan. 11.
In a Chapter 7 proceeding, Russell said, a bankruptcy trustee asks the filer to verify what’s in their petition. The filer’s creditors are then given a chance to ask questions of their own, she said. The trustee then divides a person’s assets into two categories, exempt or non-exempt, and the debts into either secured or unsecured debts.

Exempt assets can include the filer’s home, clothing, family heirlooms and equipment needed to run his or her business, Russell said. Secured debts are those that have some type of collateral, Russell said, and can include a person’s mortgage or auto loan.

Malone listed his home, valued at $30,000 as exempt, and about $43,227 of personal property including a tractor and his vehicle, a PT Cruiser.

Almost all of Malone’s $616,000 worth of unsecured debts were listed as either a business debt or a business loan owed to one of 32 creditors.

Russell said unsecured debts are paid out on a pro-rata basis, which means that each creditor is paid based on the size of the debts they are owed – once the assets are sold.

Once those debts are paid, the creditors claims are considered to be dismissed or null and void. A creditor can appeal and reverse a bankruptcy filing if there was some type of fraud involved in the process.

Malone is one of 1,201 individuals who have filed for bankruptcy in Tennessee’s Eastern District since Dec. 1. That’s more than 25 percent higher than the number of people who filed in the Eastern District in December 2007.

All told, bankruptcy filings in the Eastern District have increased by 73 percent since 2006, when a series of changes in the U.S. Bankruptcy Code made it harder for individuals to file. But the trend is far from being confined to east Tennessee.

Between January and May, 2,938 people filed for bankruptcy in the Western District of Virginia’s bankruptcy court, which operates out of Roanoke, Lynchburg and Harrisonburg.

That’s 30 percent higher than the number of people who filed for bankruptcy in that district between January and May 2007 and an 81 percent increase the number of filings between January and May 2006. - tricities.com