Personal Bankruptcy Cases Continue to Rise

Four years ago, Chris, a 38-year-old engineering manager from Chicago, would not have thought he'd be in the position he's in today. He was just starting to see his dreams materialize.

Everything was falling into place. Chris had a good paying job and was working and living in Winona, Minn. He and his wife had been married for four years. They had three boys and they found a nice affordable lot in Centerville, Wis., and built a brand new house.

They both got caught up in the excitement of the long-term planning for their young family.

It was a lifelong dream for Chris.

The couple knowingly got to a point where they were financially thin but still happy, but they were prepared to make some sacrifices together to make their dream come true.

Chris moved to the area eight years ago, but his troubles started in 2003. He didn't notice, but things were starting to unravel.

Underneath the surface a storm was brewing, which is how Chris describes it. Not long after moving into his new house, Chris found himself in the middle of a divorce after only four short years of marriage. It came as a shock.

"I'm not completely innocent let's just say I was unaware," Chris said. "I was trying to be a good husband."

Bills were piling up. A mortgage. Payments for the truck and mini van. With the divorce he was now paying child support for his three boys. On top of all that, just before the divorce his wife had run up credit card bills that were in Chris's name.

Things didn't look good.

The couple filed for divorce in March 2003 and by April Chris realized something had to be done.

Life in general led to his financial situation, but he needed to find a way out.

He couldn't get out from under the mounting debt and he found himself considering something he'd never thought about before, filing for bankruptcy.

While he and his wife considered going through it together, Chris ended up going it alone.

By the time he was looking for a lawyer Chris said he already knew by looking at the numbers that there was going to be trouble. That's when he decided to call Mark Huesmann, a Holmen attorney.

The number of personal bankruptcy filings in La Crosse County has climbed steadily over the past five years. In 1999 there were 243 individual bankruptcy filings. The number jumped to 436 by 2004, a 79 percent increase.

While filings are up locally, nationwide they are down a bit, though still at historic highs, according to the Administrative Office of the U.S. Courts. The nation set a record of 1.5 million filings in 2002. During the 12-month period ending September 2004, 1.58 million people filed for bankruptcy, down from 1.62 million in 2003, a drop of 3 percent.

Huesmann, who has been practicing for the past 10 years, said he gets a lot of calls in January and February from people who face a financial situation that makes them consider bankruptcy.

They're the kind of cases he finds himself working on more and more.

"We've literally done hundreds of cases in the past few years," Huesmann said. "It's an increasing part of our practice."

According to a 2004 release from the American Bankruptcy Institute, the 99 percent increase in nationwide personal bankruptcy filings in the last decade was consistent with the growth in consumer debt.

The institute studied data from the Federal Reserve Board which indicated that household debt, at $8.9 trillion in 2003, was at a record high relative to disposable income and some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households.

"You can tie some of this together with the proliferation of easy credit," Huesmann said. "We have to shift our thinking about credit in this society."

High household indebtedness could lead to more household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated, according to the bankruptcy institute.

It's the kind of thing Huesmann has seen quite often with his clients. Many people are taking on more debt than they can reasonable handle.

"People are getting into trouble by buying homes that are too expensive for them," Huesmann said. "People are using too much of their disposable income for mortgage payments."

Bankruptcy probably isn't the first word that comes to a persons mind when they are thinking about getting their financial situation in order.

It has a troubled past. The word still carries a lot of baggage.

While people are no longer thrown into jail for not being able to pay their debts, people still have reservations about filing.

La Crosse County bankruptcies are discharged in the 7th District Court in Eau Claire. That was where Chris found himself in September 2003.

Individuals have two options when considering bankruptcy. Chapter 7, allows a debtor to eliminate most of their debts in exchange for giving up property that is not protected by state and federal exemption laws.

A bankruptcy trustee sells property and distributes the money to creditors. Any remaining unpaid debt is wiped out. If a person doesn't have much property, they often get to keep what little they have.

Certain kinds of debts like child support, student loans, taxes and any debts that might be challenged by creditors during a hearing cannot be successfully eliminated in Chapter 7 bankruptcy.

Once a person files for bankruptcy all creditors are required to stop calling.

Another option for individuals is to file Chapter 13 bankruptcy, which allows them to rearrange their financial affairs, repay a portion of their debts and get back on track.

Under a typical Chapter 13 plan, a person makes monthly payments to a bankruptcy trustee, who is appointed by the bankruptcy court, for three to five years. The bankruptcy trustee distributes the money to your creditors.

While it is often frowned upon by creditors, filing for bankruptcy is a way for people who find themselves in a dire financial situation to get a new start.

"So many people do not look at bankruptcy as a financial planning tool," Huesmann said.

Driving back from Eau Claire, Chris said he was aghast. He couldn't believe how easy it was. While the process might have been relatively easy, going through it still had a lasting affect.

Chris had always thought he was the one doing well in his family. He was proud. Having been in the military, where he developed a sense or trust, honor and respect, Chris said he found it ironic that he filed for bankruptcy.

It can happen to anyone. Huesmann said it cuts across socioeconomic lines.

If people are thinking about taking out a credit card to pay off another credit card, or taking their car title in for a loan, they should consult someone immediately, Huesmann said.

Filing for Chapter 7 gives people the opportunity to wipe out most of their debt, but some people choose to keep some in order to maintain a relationship with a creditor.

While Chris chose to reaffirm some of his debts - debtors may choose to keep and pay off some debts - the bank did foreclose on his home. The home he helped design. The place where he thought he was building a family.

He said he probably didn't feel the sting that some do when filing bankruptcy.

"I can see how people can get themselves in trouble," Chris said. "I don't know that people have the same financial accountability that our parents had."

It wasn't long before he was getting information in the mail about loans and credit cards, but he knew better. He kept one of his credit cards through the bankruptcy and only uses it for emergencies.

After his bankruptcy was discharged Chris sought counseling to deal with the situation and his feeling of guilt and disappointment.

Chris didn't lose everything. In fact he came out OK. He kept his job. He eventually got custody of his three boys and he got remarried on New Year's Eve 2004.

Most people who file for bankruptcy don't lose everything. For many, it is a opportunity to wipe the slate clean. But it does not solve their problems.

"Sometimes it is a reality check for people," Huesmann said.