November 26, 2010
More than 1.6 million Americans are expected to file for bankruptcy-court protection this year, more than any year since Congress overhauled the system in 2005.
The face of bankruptcy changed during the recession, as better-off Americans joined the ranks of the usual filers.
While most debtors earn less than $30,000 and don't have college degrees, last year more than a fifth of them had college degrees, a 4.1-percentage-point increase from 2006, according to surveys of people in bankruptcy counseling by the nonprofit Institute for Financial Literacy.
Last year's group earned more too, with 9.1% of debtors earning more than $60,000 compared with 5.5% of them three years earlier, according to the institute's surveys.
For all recent filers, the nation's persistently high unemployment rate and housing-debt hangover is making it harder to take advantage of the fresh start bankruptcy was designed to offer.
"What bankruptcy can do successfully is take some of the debt pressure off," said Katherine Porter, a visiting law professor at Harvard University. "The fresh start is a step forward, but it's not a leap forward."
Bankruptcy can bring relief from bill collectors's calls and mushrooming credit-card balances. But it can also create new obstacles, particularly these days. Filing a bankruptcy petition—which lingers on a credit report up to 10 years—can make it more difficult to find a job or rent an apartment.
A 2009 Society for Human Resource Management survey of corporate employers found that 60% run credit checks on at least some job candidates. One quarter said bankruptcy would make them unlikely to extend a job offer.
For debtors who are house hunting, it can be frustrating. "If you have a bankruptcy within a year, you won't get an apartment," said Mike Lapsley, vice president of RentGrow, a unit of Yardi Systems Inc. that screens tenants for about 700,000 apartments nationwide.
For lenders, of course, a customer's insolvency is a big leap backward. Although data on debt wiped out in bankruptcy isn't available, more than $588 billion of credit-card, mortgage and other consumer debt has been written off in the past two years, government data indicate.
Congress hadn't envisioned a surge in bankruptcies when it retooled the law to make it harder for consumers to walk away from their debts. But then few in 2005 anticipated the housing bust, credit crunch and the worst recession since the Great Depression.
Most filers still opt for Chapter 7, where debts are forgiven and assets sometimes forfeited, over Chapter 13, which puts debtors on a repayment plan and to which the 2005 law tried to steer more filers. The following accounts show how some debtors are navigating their post-bankruptcy landscape.
Hurdles on Hunt for a Job
Tamara Ricks of Sunset, Utah, was offered a billing position by the municipal water, sewer and garbage department in nearby Washington Terrace, contingent upon a credit check. Ms. Ricks says she was upfront with the company about her bankruptcy: She and her husband filed a Chapter 7 petition in February 2010 after their ice-cream parlor went under and her husband's construction work dried up. They listed more than $33,000 of debt to creditors including JPMorgan Chase & Co. and Discover Financial Services.
The interviewer, she says, explained that would be a problem; shortly afterward Ms. Ricks received a letter saying she had been turned down. "There's no doubt in my mind it was the bankruptcy," Ms. Ricks says. "I was very surprised. I would've thought that they would've taken the circumstances into consideration."
The city treasurer, Laura Gamon, who also oversees human resources, says Washington Terrace doesn't comment on personnel matters but that its policy is to require credit checks for employees who deal with finances or consumer information. "It's a way we protect our citizens," Ms. Gamon says.
Federal law bars public employers from denying someone a job because of bankruptcy; the laws for private employers are more vague.
Ms. Ricks now steers clear of positions that require credit checks. She is working part-time in a school lunch program and her husband is receiving unemployment benefits. Both are searching for full-time work.
Renting Home Takes Ingenuity
Linda Frakes filed for bankruptcy protection in October 2008, listing nearly $310,000 of credit-card debt owed to everyone from American Express Co. to Home Depot Inc. The bulk of it was from the cost of eight Curves fitness centers in which she had invested. After brief stint in a dental office, Ms. Frakes is now unemployed, living on $330 a week of unemployment benefits and odd jobs.
After losing her house to foreclosure, Ms. Frakes began her search for rentals in the Atlanta suburbs. Duplexes turned her down; so did owners of single-family homes. Eventually she zeroed in on a house within walking distance of her teenage son's school. Although the owner was reluctant, Ms. Frakes says she talked him into it, and offered to show his other properties in the neighborhood to prospective tenants.
Apartment complexes sometimes will take into account individuals' circumstances. Archstone Operating Trust LLC, which operates about 70,000 apartments throughout the U.S., uses credit-scoring software that predicts an applicant's likelihood of default based on credit history, income and other factors.
"There are good bankruptcies and bad bankruptcies," says Donald Davidoff, Archstone group vice president. "If someone has a bankruptcy but it's clear he didn't just go on a credit binge, there's still a chance we'll rent him an apartment."
Getting a car presented another, ultimately surmountable, challenge for Ms. Frakes. After her car was repossessed, most dealers refused to finance a new one. Then a local dealership offered to finance a used 2005 Jaguar station wagon. "I ended up buying the Jaguar because they are the only ones that would loan me the money," Ms. Frakes says. "I'm still floored. It was a ridiculous interest rate, but I was happy." She paid about $1,400 upfront and makes $300 monthly payments at an 18% interest rate.
Facing a World Without Credit
Robert Meixner, 62, of Port St. Lucie, Fla., filed for bankruptcy in mid-2009, nearly a year after losing his job as an ambulance-company controller. He wanted to shed about $64,000 of credit-card debt, related to a failed flower shop, that he had been paying off since the late 1980s. Mr. Meixner says he felt guilty at first, but after calculating how much interest he had paid—more than $150,000 on an original $40,000 debt—he felt comfortable defaulting.
"My credit is wrecked, but now that we don't have that debt, this is kind of the place I always wanted to get," he says. Mr. Meixner and his wife live on his monthly $1,600 Social Security benefit and her income from a transcription business. They have just one credit card, which they pay off every month, and live in his late father-in-law's former home.
That is a common housing solution for filers. Three years after filing for bankruptcy, just 3.4% of debtors obtained a mortgage, according to an early 2000s survey of debtors by Deborah Thorne, an Ohio University sociologist. Of those who didn't own homes, 41% had leased an apartment. Those who didn't rent lived with family or friends or were homeless.
"We're not trying to buy a house or a new car. I covet that kind of stuff, but I know I can't get it now," Mr. Meixner says.
Current on Mortgage; Tighter Belt Elsewhere
Freddie Garcia, a 60-year-old auto mechanic, filed for bankruptcy in April listing nearly $40,000 of credit-card debt. During the boom, his house in Riverside, Calif., ballooned in value to $500,000—"and we lived like we were worth that," Mr. Garcia says. He and his companion tapped home equity and spent the money, but in 2006 his companion, who earned more than Mr. Garcia, died. Then the recession hit the auto-repair shop where he works, reducing his annual income to $30,000 from $55,000.
Bankruptcy judges can't reduce mortgage principal; legislation that would have permitted that failed in Congress last year. But bankruptcy is a way for some, like Mr. Garcia, to shed other debts, helping free up money to make mortgage payments.
Multiple yard sales have cleaned out Mr. Garcia's excess home furnishings and electronics. He has cut back on his utilities; he air conditions only part of his house and canceled the cable service. But he is current on the $1,300-a-month payments on the $265,000 mortgage on his five-bedroom house, which he says is worth perhaps $180,000 now.
He's pursuing a mortgage modification because housing eats up most of his income. "I don't care if I have to work two jobs, I'm going to maintain the house payment," Mr. Garcia says.
'Maybe I Got Complacent'
Romona Czichos has filed for bankruptcy twice.
Romona Czichos, 51, first filed a petition about 15 years ago when the dental laboratory she owned went out of business. The Hollister, Calif., resident was happy to be free of it, saying, "It was like being married to someone I really hated."
Ms. Czichos went back to school and took a job in web development for a military contractor.
For a while, Ms. Czichos used only an American Express card that she paid off every month. Before long, though, she had seven or so cards, her earlier bankruptcy presenting no obstacle to obtaining new ones. "I thought: My job's going great.…I can actually afford to be comfortable," Ms. Czichos says. "I think maybe in that respect I got too complacent."
Her position ended in October 2008. In May, Ms. Czichos filed for bankruptcy again, this time listing more than $43,000 of unpaid debts to creditors. "I knew the seriousness of it, and I just didn't want to do it again," she says. "I didn't know any other way."
More than 1.6 million Americans are expected to file for bankruptcy-court protection this year, more than any year since Congress overhauled the system in 2005.
The face of bankruptcy changed during the recession, as better-off Americans joined the ranks of the usual filers.
While most debtors earn less than $30,000 and don't have college degrees, last year more than a fifth of them had college degrees, a 4.1-percentage-point increase from 2006, according to surveys of people in bankruptcy counseling by the nonprofit Institute for Financial Literacy.
Last year's group earned more too, with 9.1% of debtors earning more than $60,000 compared with 5.5% of them three years earlier, according to the institute's surveys.
For all recent filers, the nation's persistently high unemployment rate and housing-debt hangover is making it harder to take advantage of the fresh start bankruptcy was designed to offer.
"What bankruptcy can do successfully is take some of the debt pressure off," said Katherine Porter, a visiting law professor at Harvard University. "The fresh start is a step forward, but it's not a leap forward."
Bankruptcy can bring relief from bill collectors's calls and mushrooming credit-card balances. But it can also create new obstacles, particularly these days. Filing a bankruptcy petition—which lingers on a credit report up to 10 years—can make it more difficult to find a job or rent an apartment.
A 2009 Society for Human Resource Management survey of corporate employers found that 60% run credit checks on at least some job candidates. One quarter said bankruptcy would make them unlikely to extend a job offer.
For debtors who are house hunting, it can be frustrating. "If you have a bankruptcy within a year, you won't get an apartment," said Mike Lapsley, vice president of RentGrow, a unit of Yardi Systems Inc. that screens tenants for about 700,000 apartments nationwide.
For lenders, of course, a customer's insolvency is a big leap backward. Although data on debt wiped out in bankruptcy isn't available, more than $588 billion of credit-card, mortgage and other consumer debt has been written off in the past two years, government data indicate.
Congress hadn't envisioned a surge in bankruptcies when it retooled the law to make it harder for consumers to walk away from their debts. But then few in 2005 anticipated the housing bust, credit crunch and the worst recession since the Great Depression.
Most filers still opt for Chapter 7, where debts are forgiven and assets sometimes forfeited, over Chapter 13, which puts debtors on a repayment plan and to which the 2005 law tried to steer more filers. The following accounts show how some debtors are navigating their post-bankruptcy landscape.
Hurdles on Hunt for a Job
Tamara Ricks of Sunset, Utah, was offered a billing position by the municipal water, sewer and garbage department in nearby Washington Terrace, contingent upon a credit check. Ms. Ricks says she was upfront with the company about her bankruptcy: She and her husband filed a Chapter 7 petition in February 2010 after their ice-cream parlor went under and her husband's construction work dried up. They listed more than $33,000 of debt to creditors including JPMorgan Chase & Co. and Discover Financial Services.
The interviewer, she says, explained that would be a problem; shortly afterward Ms. Ricks received a letter saying she had been turned down. "There's no doubt in my mind it was the bankruptcy," Ms. Ricks says. "I was very surprised. I would've thought that they would've taken the circumstances into consideration."
The city treasurer, Laura Gamon, who also oversees human resources, says Washington Terrace doesn't comment on personnel matters but that its policy is to require credit checks for employees who deal with finances or consumer information. "It's a way we protect our citizens," Ms. Gamon says.
Federal law bars public employers from denying someone a job because of bankruptcy; the laws for private employers are more vague.
Ms. Ricks now steers clear of positions that require credit checks. She is working part-time in a school lunch program and her husband is receiving unemployment benefits. Both are searching for full-time work.
Renting Home Takes Ingenuity
Linda Frakes filed for bankruptcy protection in October 2008, listing nearly $310,000 of credit-card debt owed to everyone from American Express Co. to Home Depot Inc. The bulk of it was from the cost of eight Curves fitness centers in which she had invested. After brief stint in a dental office, Ms. Frakes is now unemployed, living on $330 a week of unemployment benefits and odd jobs.
After losing her house to foreclosure, Ms. Frakes began her search for rentals in the Atlanta suburbs. Duplexes turned her down; so did owners of single-family homes. Eventually she zeroed in on a house within walking distance of her teenage son's school. Although the owner was reluctant, Ms. Frakes says she talked him into it, and offered to show his other properties in the neighborhood to prospective tenants.
Apartment complexes sometimes will take into account individuals' circumstances. Archstone Operating Trust LLC, which operates about 70,000 apartments throughout the U.S., uses credit-scoring software that predicts an applicant's likelihood of default based on credit history, income and other factors.
"There are good bankruptcies and bad bankruptcies," says Donald Davidoff, Archstone group vice president. "If someone has a bankruptcy but it's clear he didn't just go on a credit binge, there's still a chance we'll rent him an apartment."
Getting a car presented another, ultimately surmountable, challenge for Ms. Frakes. After her car was repossessed, most dealers refused to finance a new one. Then a local dealership offered to finance a used 2005 Jaguar station wagon. "I ended up buying the Jaguar because they are the only ones that would loan me the money," Ms. Frakes says. "I'm still floored. It was a ridiculous interest rate, but I was happy." She paid about $1,400 upfront and makes $300 monthly payments at an 18% interest rate.
Facing a World Without Credit
Robert Meixner, 62, of Port St. Lucie, Fla., filed for bankruptcy in mid-2009, nearly a year after losing his job as an ambulance-company controller. He wanted to shed about $64,000 of credit-card debt, related to a failed flower shop, that he had been paying off since the late 1980s. Mr. Meixner says he felt guilty at first, but after calculating how much interest he had paid—more than $150,000 on an original $40,000 debt—he felt comfortable defaulting.
"My credit is wrecked, but now that we don't have that debt, this is kind of the place I always wanted to get," he says. Mr. Meixner and his wife live on his monthly $1,600 Social Security benefit and her income from a transcription business. They have just one credit card, which they pay off every month, and live in his late father-in-law's former home.
That is a common housing solution for filers. Three years after filing for bankruptcy, just 3.4% of debtors obtained a mortgage, according to an early 2000s survey of debtors by Deborah Thorne, an Ohio University sociologist. Of those who didn't own homes, 41% had leased an apartment. Those who didn't rent lived with family or friends or were homeless.
"We're not trying to buy a house or a new car. I covet that kind of stuff, but I know I can't get it now," Mr. Meixner says.
Current on Mortgage; Tighter Belt Elsewhere
Freddie Garcia, a 60-year-old auto mechanic, filed for bankruptcy in April listing nearly $40,000 of credit-card debt. During the boom, his house in Riverside, Calif., ballooned in value to $500,000—"and we lived like we were worth that," Mr. Garcia says. He and his companion tapped home equity and spent the money, but in 2006 his companion, who earned more than Mr. Garcia, died. Then the recession hit the auto-repair shop where he works, reducing his annual income to $30,000 from $55,000.
Bankruptcy judges can't reduce mortgage principal; legislation that would have permitted that failed in Congress last year. But bankruptcy is a way for some, like Mr. Garcia, to shed other debts, helping free up money to make mortgage payments.
Multiple yard sales have cleaned out Mr. Garcia's excess home furnishings and electronics. He has cut back on his utilities; he air conditions only part of his house and canceled the cable service. But he is current on the $1,300-a-month payments on the $265,000 mortgage on his five-bedroom house, which he says is worth perhaps $180,000 now.
He's pursuing a mortgage modification because housing eats up most of his income. "I don't care if I have to work two jobs, I'm going to maintain the house payment," Mr. Garcia says.
'Maybe I Got Complacent'
Romona Czichos has filed for bankruptcy twice.
Romona Czichos, 51, first filed a petition about 15 years ago when the dental laboratory she owned went out of business. The Hollister, Calif., resident was happy to be free of it, saying, "It was like being married to someone I really hated."
Ms. Czichos went back to school and took a job in web development for a military contractor.
For a while, Ms. Czichos used only an American Express card that she paid off every month. Before long, though, she had seven or so cards, her earlier bankruptcy presenting no obstacle to obtaining new ones. "I thought: My job's going great.…I can actually afford to be comfortable," Ms. Czichos says. "I think maybe in that respect I got too complacent."
Her position ended in October 2008. In May, Ms. Czichos filed for bankruptcy again, this time listing more than $43,000 of unpaid debts to creditors. "I knew the seriousness of it, and I just didn't want to do it again," she says. "I didn't know any other way."
Closed November 2010
341 Meeting 12-16-2010 
Comment