Editor's note: The names of the people featured in this article who are considering bankruptcy have been changed to protect their privacy.
By Rudi Keller
Bankruptcy is a debtor's last resort for relief from the stress of dealing with creditors who can't be paid.
It's a step that can bring embarrassment, a sense of failure and the loss of possessions amassed over years of hard work. But as the economy soured during 2008, more and more Southeast Missourians sought protection from their creditors.
Bankruptcies in the Southeastern Division of the U.S. Bankruptcy Court for the Eastern District of Missouri increased 29 percent in 2008 compared to 2007. Filings were 77 percent higher than in 2006. And an increasing number of people from throughout the Eastern District are using the courts to eliminate their debts.
With rapidly rising unemployment, lawyers who handle bankruptcies -- representing both creditors and debtors -- said they expect more filings. Unemployment in a 10-county region rose to 7.2 percent in December.
The jobless numbers reflect small companies going under, construction companies with nothing to build and manufacturing firms such as Thorngate and Dana Corp. that have closed. People who lived in relative comfort on a good wage now must make ends meet on unemployment benefits, which are a maximum of $320 a week in Missouri and last, at most, for 39 weeks.
Most of the people filing for bankruptcy aren't deadbeats avoiding bills, said Paul Berens, a lawyer whose main bankruptcy business is to represent creditors.
"Ninety-nine percent of the filers in Southeast Missouri are legitimate hardship cases," Berens said. "They are not planning it. These are not abusive filings."
Congress in 2005 approved sweeping changes in bankruptcy laws to make it more difficult to file for what is called Chapter 7, which gives debtors complete relief from unsecured debt. The changes were intended to make people pay at least a portion of their debts to credit card companies, medical providers and others who hold obligations without collateral. The measure passed after heavy lobbying by the finance industry.
Berens doesn't like the results. "We've had over a year of this under our belts," Berens said. "If we didn't know it before, we know it now. A law written by lobbyists is not very good."
One couple's troubles
One of the biggest dilemmas for someone juggling bills is deciding when to file for bankruptcy. For John and Lisa, who live in rural Cape Girardeau County with their school-age daughter Cathy, that time is now.
John and Lisa lived the dream. He worked for Dana Corp. for 10 years. She had a good-paying job with a major corporation but left to take a less-stressful clerical job, at lower pay, well before Dana Corp.'s troubles began.
After Dana closed its doors in December 2007, John found work at another area manufacturer. But shortly before he qualified for benefits, he was diagnosed with a medical condition that foced him to give up the job. He's now trying to keep his family together on $1,260 a month in unemployment, supplemented by Lisa's part-time job.
They owe $4,000 that must be paid to their mortgage company by Feb. 16 to catch up on their house payments. John was recently sued in Cape Girardeau County over medical bills, and they have home repairs they can't afford to make. In the driveway, there are two modest American-made cars, both at least five years old. If one should need repairs, they can't afford to fix it.
John and Lisa along the way stopped paying their credit card bills because they couldn't afford even the minimum amounts. And among the things they can't afford is bankruptcy. They are $800 short of paying their attorney the $1,200 fee he is requiring to file their case.
But their biggest worry isn't whether they will keep their home. It is that family members will find out.
"Nobody really wants anybody to know how bad things are," Lisa said.
When things were good -- John and Lisa estimate they made $75,000 in their best year -- entertainment spending meant family trips, most not far. A wild weekend was treating Cathy and her friends to a short trip.
Their income in 2008 was far from their best year. "If we busted $25,000, we'll be lucky," John said.
It isn't just people who have been laid off who are showing up in lawyers' offices seeking help. There are many workers who based their lifestyle on regular overtime who now are on the job fewer than 40 hours a week. If careful money management isn't enough to stay current, bankruptcy should be considered as an option before creditors use the courts to enforce their claims, which can result in garnishments or liens that can last for years.
"When people come in and say I want to file bankruptcy, I ask them to consider other options, such as can they take a second job or work more hours," said Mike Payne of the Limbaugh Law Firm. "But if they have $50,000 in credit card debts and they make $30,000 a year, I don't care what they do, they will never pay it off. That is what the bankruptcy system is made for."
Can happen to anyone
Job loss is one of the common reasons for bankruptcy. Other major causes are medical expenses and divorce.
Many people who come to Daniel Statler of the Statler Law Firm have tried using the firms that advertise constantly that they can negotiate better deals with credit card companies, reducing interest rates and payments. Statler said he's not sure how well those companies work. "The ones I get are the people who have tried it and it has not worked. There may be thousands of success stories."
Lawyers interviewed for this article, whether they represent creditors or debtors, said filing for bankruptcy shouldn't be viewed as shameful. Anyone can find themselves unable to satisfy certain creditors and in need of help, they said.
One client who came to Payne works for $8 an hour and has no health insurance. He broke his arm and was treated at a Cape Girardeau hospital. He never asked and was never told at the time what he would be charged. Doctor bills were $3,000. The hospital wanted $17,000.
The doctors accepted payments over time, but the hospital sued because it wanted more than the $50 monthly the man could afford. Bankruptcy offers that man a fresh start, Payne said. "There are a lot of people who are just one broken arm away from being bankrupt."
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