More Americans taking Bankruptcy over destitution

socalgem · Jun 7th, 2008, 02:23 AM

http://www.chron.com/disp/story.mpl/headli...iz/5809126.html

WASHINGTON — Danielle Lancaster makes $28,000 a year as a bank employee in Richmond, Va. She owes almost twice that on her credit cards, student and car loans.

Add to that day-care expenses for her 2-year-old daughter, rent and utilities, and she uses up every cent she brings in. She has cut costs any way she can, suspending luxuries such as restaurant meals and movies. But that didn't stop her car from getting repossessed.

"I work to live," she said. "I see my check, and it's gone right away."

Lancaster is 26 and bankrupt — literally.

Two weeks ago, she filed for Chapter 13 bankruptcy protection, which will restructure her debt. She will have five years to pay it off under a plan that lowers her monthly payments.

"Everything just got to be too much," said Lancaster, who recently earned an undergraduate degree from Norfolk State University.

Once considered a last resort, more Americans are choosing bankruptcy over destitution. Despite the 2005 passage of a law that made it more difficult and expensive to go bankrupt, personal bankruptcy filings — including Chapter 7, which wipes out debt, and Chapter 13, which reorganizes it — totaled 822,590 last year, up 38 percent from 597,965 in 2006.

Subprime fallout
The numbers tell the story of a crippled economy, one in which people owe more than they can afford to their creditors — be they credit card companies, mortgage lenders or auto and student loan servicers. And it's one more disturbing chapter in the saga of the subprime mortgage problem, in which homeowners unable to handle higher interest payments on their adjustable-rate mortgages are turning to bankruptcy to avoid foreclosure.

"The rise in bankruptcies is not about something that happened last week or last month," said Elizabeth Warren, a Harvard Law School professor and a bankruptcy expert.

"It's about the fundamentals. It's about declining wages, rising costs, inadequate health insurance, job instability. More hardworking middle-class families simply can't make it in this economy, and it's only getting worse."

Bankruptcy attorneys and economists said the trend cuts across all segments of society — the young and the old, homeowners with bad mortgages and renters, the poor and the middle class. In the past, bankruptcies were more common among people who had sudden life changes, such as a divorce, illness or job loss. Now, the bankrupt are people who have simply racked up too much debt over the years.

"It is pretty widespread, because there are widespread problems in the economy," said Peter Morici, an economist at the University of Maryland at College Park. "Americans have been spending 105 percent of their income for the last three or four years. That's not sustainable."

Saving their homes
Declining home values are exacerbating the problem. No longer can people rely on the equity in their homes to pull themselves out of debt. Most troubling is that people are increasingly seeking bankruptcy protection to save their homes. Filing for Chapter 13 freezes a foreclosure and allows homeowners to negotiate more manageable payments with their lenders.

Congress recently considered a proposal by Sen. Dick Durbin, D-Ill., to let bankruptcy judges cut interest rates and principal on troubled mortgages. But that plan was scuttled. Instead, consumers must operate under the law passed in 2005, which was intended to get people to choose other alternatives. In response to critics, such as credit card issuers who complained that people sought bankruptcy too frivolously, Congress enacted tighter income limits, tougher standards for measuring a debtor's ability to pay and mandatory credit counseling.

Personal bankruptcies reached a peak of 2.04 million that year as debtors rushed to file before the changes went to effect. The number dropped precipitously in 2006 but started climbing back up in 2007, according to the Administrative Office of the U.S. Courts.

Bob Arnold, 46, is waiting to find out whether the court will accept his Chapter 7 filing. He once made more than $100,000 a year as a manager at a printing plant. Then he lost his job, which wiped out his ability to pay child support and send money to about a dozen credit card companies, the lender for his time share and Capital One for his car. His monthly obligations totaled about $2,000, more than he takes in at his new job as a paralegal. He kept up his child support but stopped payments to other creditors. Then a friend, an attorney, suggested bankruptcy.

"I'm not happy about it, but I have to do what I have to do," the Centreville, Va., resident said. "I can't keep these creditors on hold, and I can't give them what I don't have."

Jun 7th, 2008, 02:23 AM	#1
socalgem Because I can... Joined: Apr 2007 Location: California Posts: 4,462	More Americans taking Bankruptcy over destitution http://www.chron.com/disp/story.mpl/headli...iz/5809126.html WASHINGTON — Danielle Lancaster makes $28,000 a year as a bank employee in Richmond, Va. She owes almost twice that on her credit cards, student and car loans. Add to that day-care expenses for her 2-year-old daughter, rent and utilities, and she uses up every cent she brings in. She has cut costs any way she can, suspending luxuries such as restaurant meals and movies. But that didn't stop her car from getting repossessed. "I work to live," she said. "I see my check, and it's gone right away." Lancaster is 26 and bankrupt — literally. Two weeks ago, she filed for Chapter 13 bankruptcy protection, which will restructure her debt. She will have five years to pay it off under a plan that lowers her monthly payments. "Everything just got to be too much," said Lancaster, who recently earned an undergraduate degree from Norfolk State University. Once considered a last resort, more Americans are choosing bankruptcy over destitution. Despite the 2005 passage of a law that made it more difficult and expensive to go bankrupt, personal bankruptcy filings — including Chapter 7, which wipes out debt, and Chapter 13, which reorganizes it — totaled 822,590 last year, up 38 percent from 597,965 in 2006. Subprime fallout The numbers tell the story of a crippled economy, one in which people owe more than they can afford to their creditors — be they credit card companies, mortgage lenders or auto and student loan servicers. And it's one more disturbing chapter in the saga of the subprime mortgage problem, in which homeowners unable to handle higher interest payments on their adjustable-rate mortgages are turning to bankruptcy to avoid foreclosure. "The rise in bankruptcies is not about something that happened last week or last month," said Elizabeth Warren, a Harvard Law School professor and a bankruptcy expert. "It's about the fundamentals. It's about declining wages, rising costs, inadequate health insurance, job instability. More hardworking middle-class families simply can't make it in this economy, and it's only getting worse." Bankruptcy attorneys and economists said the trend cuts across all segments of society — the young and the old, homeowners with bad mortgages and renters, the poor and the middle class. In the past, bankruptcies were more common among people who had sudden life changes, such as a divorce, illness or job loss. Now, the bankrupt are people who have simply racked up too much debt over the years. "It is pretty widespread, because there are widespread problems in the economy," said Peter Morici, an economist at the University of Maryland at College Park. "Americans have been spending 105 percent of their income for the last three or four years. That's not sustainable." Saving their homes Declining home values are exacerbating the problem. No longer can people rely on the equity in their homes to pull themselves out of debt. Most troubling is that people are increasingly seeking bankruptcy protection to save their homes. Filing for Chapter 13 freezes a foreclosure and allows homeowners to negotiate more manageable payments with their lenders. Congress recently considered a proposal by Sen. Dick Durbin, D-Ill., to let bankruptcy judges cut interest rates and principal on troubled mortgages. But that plan was scuttled. Instead, consumers must operate under the law passed in 2005, which was intended to get people to choose other alternatives. In response to critics, such as credit card issuers who complained that people sought bankruptcy too frivolously, Congress enacted tighter income limits, tougher standards for measuring a debtor's ability to pay and mandatory credit counseling. Personal bankruptcies reached a peak of 2.04 million that year as debtors rushed to file before the changes went to effect. The number dropped precipitously in 2006 but started climbing back up in 2007, according to the Administrative Office of the U.S. Courts. Bob Arnold, 46, is waiting to find out whether the court will accept his Chapter 7 filing. He once made more than $100,000 a year as a manager at a printing plant. Then he lost his job, which wiped out his ability to pay child support and send money to about a dozen credit card companies, the lender for his time share and Capital One for his car. His monthly obligations totaled about $2,000, more than he takes in at his new job as a paralegal. He kept up his child support but stopped payments to other creditors. Then a friend, an attorney, suggested bankruptcy. "I'm not happy about it, but I have to do what I have to do," the Centreville, Va., resident said. "I can't keep these creditors on hold, and I can't give them what I don't have."