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The number of Chattanoogans going broke dropped for the fifth consecutive year in 2014 as lower interest rates and gasoline prices combined with higher home values and job prospects to help those in financial trouble.

But Tennessee, Georgia and Alabama still remain the top states for bankruptcy filings.

Last year, 5,882 individuals and businesses filed for bankruptcy protection in the Chattanooga office of the U.S. Bankruptcy Court, down nearly 10 percent from the previous year and the lowest annual total since 2007 before the recession. Over the past five years, bankruptcy filings in Chattanooga have dropped by more than 30 percent.

"Sustained low interest rates and high costs to file continue to turn consumers and businesses away from the Bankruptcy Code for a financial fresh start," said Samuel J. Gerdano, executive director for the American Bankruptcy Institute.

Bankruptcy filings also fell due to the drop in property foreclosures, which declined last year by 13 percent in Hamilton County from the previous year. Foreclosure filings against properties, which include default notices, bank repossessions or scheduled auctions, were down even more last year, according to the online real estate service RealtyTrac.

Nationwide, 1.1 million properties received foreclosure notices of some type in 2014, down 29 percent from previous year and the lowest total since before the housing bust in 2006.

"The U.S. foreclosure numbers in 2014 show a foreclosure market that is close to finding a floor and stabilizing at a historically normal level," said Daren Blomquist, vice president at RealtyTrac. "Foreclosures are no longer a threat to home values nationwide."

Chattanooga Mayor Andy Berke said local foreclosures have dropped to the lowest levels since before the recession and should decline further as the economy continues to mend from the Great Recession.

"Obviously, when you have fewer fire sales, the better off is the market," Berke told Realtors last week. "That means that even people at the lower end of the economic spectrum are doing better. It also means that there is greater demand for housing and we're seeing prices go up."

Keith Smith, vice president of franchise sales for Berkshire Hathaway HomeServices, said Chattanooga is poised for more home sales in the year ahead.

"The local market has momentum," Smith told real estate agents in Chattanooga last week. "From a revitalized downtown and Volkswagen and Amazon cranking it up, the region's economy and job outlook looks very bright. Those hard-working folks need homes."

RealtyTrac said Chattanooga was one of the top 10 markets for the turnaround in home price appreciation in the past year with a 10 percent gain in median home prices from November 2013 to November 2014, the latest 12-month period for which comparable data is available.

Rising home values help make it easier for homeowners to refinance their mortgages and give greater confidence to lenders to make loans in the market.

The threat of losing property in a foreclosure process is one of the biggest reasons individuals and businesses file for debt relief in bankruptcy court. Last year, foreclosure notices filed against properties dropped by 37.4 percent in Tennessee, by 32.6 percent in Georgia and by 7.4 percent in Alabama, RealtyTrac said.

But those same states continued to have the highest per capita rates for bankruptcy filings last year. In Tennessee during 2014, one of every 164 persons filed some type of bankruptcy petition for debt relief -- more than double the rate for the United States as a whole. Alabama, where one of every 189 persons filed for bankruptcy last year year, and Georgia, where one of every 191 persons filed for bankruptcy, were the next highest states.

As non-judicial states, creditors in Tennessee, Alabama and Georgia can foreclose on properties without going through an extended court process.

Debt-burdened consumers in the South also are more apt to file a Chapter 13 bankruptcy, which allows the individual to repay their debts over time under supervision of the bankruptcy court. Courts and consumers are more apt to use such bankruptcy reorganization in Tennessee and neighboring states, often lessening the stigma and losses from going broke compared to simply liquidating assets and walking away from debts as occurs with most Chapter 7 filings.

The bankruptcy reforms adopted nearly a decade ago were designed to encourage more Chapter 13 reorganizations, rather than Chapter 7 liquidations, to help creditors recover more money.

In Chattanooga bankruptcy court last year, Chapter 13 filings comprised nearly 56 percent of all bankruptcy petitions. Nationwide, Chapter 13 filings comprised about 31 percent of the cases last year, according to the American Bankruptcy Institute.

Bankruptcy reforms implemented in 2006 made it somewhat harder and more expensive to file for debt relief in federal bankruptcy court, Gerdano said. As a result, bankruptcies even in the midst of the worst economic downturn since the Great Depression never reached the 2005 peak.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.

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