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<DIV><FONT size=2>From: <EM>The New York Times</EM>
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<DIV class=timestamp>November 16, 2008</DIV>
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<H1><NYT_HEADLINE type=" " version="1.0">Downturn Drags More Consumers Into
Bankruptcy </NYT_HEADLINE></H1><NYT_BYLINE type=" " version="1.0">
<DIV class=byline>By <A title="More Articles by Tara Siegel Bernard"
href="http://topics.nytimes.com/top/reference/timestopics/people/b/tara_siegel_bernard/index.html?inline=nyt-per">TARA
SIEGEL BERNARD</A> and <A title="More Articles by Jenny Anderson"
href="http://topics.nytimes.com/top/reference/timestopics/people/a/jenny_anderson/index.html?inline=nyt-per">JENNY
ANDERSON</A></DIV></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody>
<P>The economy’s deep troubles are pushing a growing number of already
struggling consumers into bankruptcy, often with far more debt than those who
filed in previous downturns. </P>
<P>Plummeting home values, dwindling incomes and the near disappearance of
credit have proved a potent mixture. While all the usual reasons that distressed
borrowers seek bankruptcy — job loss, medical bills, divorce — play significant
roles, new economic forces are changing the calculus of who can ride out the
tough times and who cannot. </P>
<P>The number of <A title="More articles about personal bankruptcy."
href="http://topics.nytimes.com/top/reference/timestopics/subjects/b/bankruptcies/personal_bankruptcies/index.html?inline=nyt-classifier">personal
bankruptcy</A> filings jumped nearly 8 percent in October from September, after
marching steadily upward for the last two years, said Mike Bickford, president
of Automated Access to Court Electronic Records, a bankruptcy data and
management company. </P>
<P>Filings totaled 108,595, surpassing 100,000 for the first time since a law
that made it more difficult — and often twice as expensive — to file for
bankruptcy took effect in 2005. That translated to an average of 4,936
bankruptcies filed each business day last month, up nearly 34 percent from
October 2007.</P>
<P>Robert M. Lawless, a professor at the <A
title="More articles about University of Illinois"
href="http://topics.nytimes.com/top/reference/timestopics/organizations/u/university_of_illinois/index.html?inline=nyt-org">University
of Illinois</A> College of Law, pointed to the tightening of credit by banks as
a significant factor in the increase in October. As banks have pulled back on
lending, he said, consumers have been finding it more difficult, and in many
cases impossible, to use credit cards, refinance their home mortgages or fall
back on their home equity lines to get them through a rough period.</P>
<P>“A credit crunch can drive people into bankruptcy today rather than later as
sources of lending dry up,” Professor Lawless said. “With the consumer credit
tightening and the economy in a nosedive, this pop could just be the beginning
of a long-term rise in the bankruptcy filing rate to levels that are even higher
than we had before the 2005 bankruptcy law.”</P>
<P>Not only are filings up, but recent filers have had much more credit card
debt, often run up in an attempt to keep current on a mortgage that now exceeds
the value of their home, bankruptcy lawyers said in interviews.</P>
<P>A recent study found that the typical family who filed for bankruptcy in 2007
was carrying about 21 percent more in secured debts, like mortgages and car
loans, and about 44 percent more in unsecured debts, like credit cards and
medical and utility bills, than filers in 2001. </P>
<P>Their incomes, meanwhile, remained static over those six years, according to
the study, which used data from the 2007 Consumer Bankruptcy Project, a joint
effort of law professors, sociologists and physicians. Researchers surveyed
2,500 households nationwide that filed for bankruptcy in February and March
2007. </P>
<P>“Earlier downturns followed strong booms, so families went into recessions
with higher incomes and lower debt loads,” said Elizabeth Warren, a professor at
<A title="More articles about Harvard University."
href="http://topics.nytimes.com/top/reference/timestopics/organizations/h/harvard_university/index.html?inline=nyt-org">Harvard</A>
Law School and, along with Professor Lawless, part of the Bankruptcy Project
team. “But the fundamentals are off for families even before we hit the
recession this time, so bankruptcy filings are likely to rise faster.”</P>
<P>Not surprisingly, filings are increasing most rapidly in states where real
estate values skyrocketed and then crashed, including Nevada, California and
Florida. In Nevada, bankruptcy filings in October were up 70 percent compared
with last year. In California, bankruptcies jumped 80 percent in the same
period, while Florida’s filings rose 62 percent. </P>
<P>In those regions, some people are trying to rescue their homes through
bankruptcy proceedings, but many are just as relieved to walk away, shedding
layers of debt that otherwise would have taken decades to pay off.</P>
<P>Tony and Carrie Forsyth, both 30, chose not to walk away from their house in
Florida. The couple said they thought their financial situation would improve in
2006, when Mr. Forsyth accepted a promotion from his employer, a Michigan food
distributor, that required them to move to Florida. But they could not sell
their home in Ypsilanti, Mich., so they decided to rent it out. </P>
<P>In June 2006, the couple headed south and bought a house for $220,000 in
Tamarac, Fla., with no money down. Five months later, their tenants in Michigan
stopped paying, and the family had to carry two mortgage payments, just as the
adjustable-rate mortgage on their Michigan home reset to a higher interest rate.
They lost the Michigan home to foreclosure in February 2007. </P>
<P>By that time, however, the couple, who have two young daughters, were using
credit cards to pay for food, utilities and clothes. After accumulating about
$20,000 in debt, they said, they realized that bankruptcy was the only way they
could remain in their Florida home, whose value, meanwhile, had plunged 25
percent. They filed for Chapter 13 bankruptcy protection this year, which
permitted them to keep the house, and they agreed to repay a portion of their
debts over the next three years. </P>
<P>A Chapter 7 bankruptcy, by contrast, provides filers with what is known as a
“fresh start” because debts are forgiven. In this case, assets are liquidated,
though the states allow for various exemptions. To qualify for a Chapter 7,
filers need to pass a means test to determine whether they are unable to repay
their debts. </P>
<P>Filers who are deemed able to repay a portion of their debts must file for
Chapter 13 bankruptcy. Some debtors choose Chapter 13 because it permits them to
save their primary homes from foreclosure, though they are required to catch up
on their mortgage payments.</P>
<P>Mr. Forsyth said declaring bankruptcy was a difficult step. “Because of our
Christian background, it didn’t feel right,” he said. “But there was no other
way for us to live and support our family unless we went that route.” </P>
<P>Mrs. Forsyth added: “We are just rolling with life. You have to eat. You have
to have diapers.”</P>
<P>The Forsyths are emblematic of the new forces that have led to the sharp rise
in bankruptcy filings. “Historically, a person would get behind in his mortgage
because of a temporarily catastrophic financial event, such as job loss,
divorce, illness,” said Chip Parker, a bankruptcy lawyer in Jacksonville, Fla.
“However, when these adjustable-rate mortgages started resetting from their
teaser rate and clients couldn’t refinance their way out of trouble, they were
getting behind even though there was no catastrophic event.”</P>
<P>Bankruptcy lawyers report that they have been having more consultations with
middle-class families with six-figure incomes — including many who either bought
a home during the boom or pulled out most or all of their available home equity
just keep to up with the cost of living. Also caught up in the bankruptcies are
real estate investors, who hoped to flip properties they had bought near the
height of the market.</P>
<P>“There are a lot of foreclosures that haven’t taken place yet because people
still have available credit,” said Jeffrey H. Tromberg, a bankruptcy lawyer in
Fort Lauderdale, Fla. “We don’t see them until they’ve maxed out their credit
cards.”</P>
<P>A similar pattern has emerged in Las Vegas, where more people are filing for
Chapter 7 bankruptcy protection because it makes more financial sense to walk
away from their homes. Real estate values have plummeted, and now the local
economy is also suffering. Car salesmen and casino dealers are being laid off.
Valet parking attendants and masseuses are collecting less in tips. </P>
<P>“My clients are basically good people that got into a home the best way they
could and can no longer meet their obligations because their income has gone
down,” said Roger P. Croteau, a lawyer in Las Vegas who concentrates on
bankruptcy. “There is no equity to pay off their credit cards, and they are
maxed out. They haven’t saved enough because of housing costs.”</P>
<P>Ellen Stoebling, a bankruptcy lawyer in Las Vegas, added: “People are using
their cards to try and hold onto their property for as long as possible in hopes
they can somehow talk some sense into their lender and stay in the property.”
</P>
<P>The problems are not limited to people with adjustable-rate mortgages and
homes that are now worth less than they owe. Job losses are also playing a role.
Bankruptcies are also up sharply in Delaware, Rhode Island and Indiana, where
the unemployment rates have been climbing. </P>
<P>And, of course, some people continue to seek bankruptcy for the usual
reasons. </P>
<P>Lisa Marquis, a 35-year-old mother of five in Indiana, has no medical
insurance but has undergone 21 operations in the last nine years, some related
to emphysema and other respiratory diseases, and others related to accidents and
several miscarriages.</P>
<P>Mrs. Marquis cannot work, but her husband earns $13.50 an hour as a truck
driver — a salary that makes them ineligible for <A
title="Recent and archival health news about Medicaid."
href="http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/medicaid/index.html?inline=nyt-classifier">Medicaid</A>
but unable to pay their medical bills. Earlier this year, the family had to
leave the mobile home they owned because the mold there was making it hard for
her to breathe; they moved into a house where they paid more than $600 a month
in rent. Mr. Marquis was spending three days a week in court fending off angry
creditors, cutting down on the number of hours he could work.</P>
<P>In April, facing more than $114,000 in medical bills and less available
overtime work, the Marquises filed for Chapter 13 bankruptcy — the third time in
less than 10 years that Mrs. Marquis had to file for protection because of
medical bills. Because the latest filing is a Chapter 13, they have agreed to
pay some of their debts.</P>
<P>“We could have waited to do a 7,” Mrs. Marquis said. “I want to pay my debts.
I didn’t want to cheat people who helped to save my life.” </P>
<P>Despite the rise in bankruptcies, academics and lawyers say they believe that
many others have been discouraged from filing because of the 2005 bankruptcy
law. </P>
<P>Ms. Warren, the Harvard law professor, said many borrowers had been left with
the mistaken impression that they could no longer file. And, she argued, “the
widespread perception that bankruptcy is not available to help families makes
this economic crisis worse.”</P></DIV></NYT_TEXT></FONT></DIV></BODY></HTML>