Filing for bankruptcy.
As the economy worsens, more and more Americans are taking the drastic step of bankruptcy to try to recover from their financial hardships. The poor state of the economy has caused the number of personal bankruptcy filings to skyrocket in the past year. Nationwide, bankruptcy filings are up 33 percent from 2007, according to the AACER, a private firm that tracks bankruptcy filings. The firm found that an average of over 5,000 new filings per day were reported in November.
In Onondaga County, bankruptcy filings have increased over the past year, but the area has been luckier than other parts of the country. For example, 2,210 local residents filed for bankruptcy at the Syracuse office of the U.S. Bankruptcy Court for the northern district of New York by September 2007. By comparison, 2,534 residents filed by September of 2008.
That’s a 14.6 percent increase in bankruptcy filings in Onondaga County. By comparison, that’s less than half of the 33 percent national increase.
Gregory Germain, a professor of bankruptcy law at Syracuse University, says that the situation in upstate New York is better than much of the country because the local economy is comparatively stable.
“We’ve had a depressed economy in Onondaga County and upstate New York for a long time. Being in an area where there isn’t so much of an economic boom and bust cycle, people are planning better for the situation. But I think there are still a lot of people in the area suffering because of the economic climate.” (Gregory Germain, professor, SU College of Law)
Nationally, experts say the picture for people filing for bankruptcy is bleak. One of those watching the increase in bankruptcies is Maureen Thompson, the legislative director of the National Association of Consumer Bankruptcy Attorneys. The group, headquartered in Washington, D.C., is a national advocacy organization for consumer debtors and their attorneys. Thompson paints a dark picture for consumers.
“People really have nowhere to go anymore. They have no way to keep themselves afloat. And we don’t really have any solutions in sight.” (Maureen Thompson, legislative director of the National Association of Consumer Bankruptcy Attorneys)
Thompson points to a dangerous combination of factors as the causes for the recent surges in bankruptcy filings:
- The crash of the real estate boom caused property values to plunge. This has lead many to owe more money for their property than the property’s actual worth. For many people, bankruptcy is a way to try to save their home.
- A troubled job market in which wages are stagnant and the unemployment rate rises. When incomes remain the same or disappear altogether, people use credit to pay bills — until the credit runs out too.
- Worsening the situation, banks have slowed down on lending, leading to a freezing of the credit market. Without credit, consumers who are already in a pinch must scramble to cover daily expenses and pay back debt.
Bankruptcy expert Thompson describes consumer’s plight this way:
“What’s happening is that more and more people are finding that they have to use credit to cover everyday living expenses and I don’t mean luxury goods. I mean prescription drugs, food, and gas because their wages don’t cover their everyday living expenses.” (Maureen Thompson, legislative director of the National Association of Consumer Bankruptcy Attorneys)
In Onondaga County, Kurt Knudsen, a local bankruptcy lawyer, says the area has mostly been spared of the economic turbulence in other places. Knudsen adds that low property values and little demand for new homes kept upstate New York from experiencing the real-estate boom and subsequent crash.
“There weren’t as many unfinished or unsellable houses as other areas where there was expected to be a constant flow of new purchasers. Since people weren’t losing their shirts on houses locally as they were in certain other areas, there weren’t as many people having to file for bankruptcy.” (Kurt Knudsen, bankruptcy lawyer for Knudsen Legal Services of Syracuse)
But Knudsen says that national economic woes still have put many local residents in tough situations. Knudsen adds that he’s seen more business recently from consumers filing for bankruptcy. And he has seen more from some groups than others.
“I’ve seen a lot of older people now filing bankruptcy, who never would’ve considered it in the past. They just can’t live on Social Security and maybe a small pension. They end up needing credit just to get by.” (Kurt Knudsen, bankruptcy lawyer for Knudsen Legal Services of Syracuse)
Knudsen’s experience reflects a recent study by the AARP, an advocate group for persons over 50. The study showed that more than 1 in 5 people filing for bankruptcy are older than 55.
Another group Knudsen says he’s seeing a lot more of is upper-middle-class suburbanites.
“I see a lot more people who have good jobs, but they spend too much. I’ve got some people right now — a couple that makes about $100,000 a year. One would think ‘How can they have problems?’ They buy things they can’t afford — things they don’t really need.” (Kurt Knudsen, bankruptcy lawyer for Knudsen Legal Services of Syracuse)
Knudsen says he isn’t optimistic about the future because many Americans lack restraint when it comes to spending.
“The president has always said ‘Spend, spend, spend’ because it’s good for the economy. No one ever talks about saving. It’s discouraged completely. So everyone spends as much as they can possibly afford to spend. People have no cushion — no savings to rely upon, no safety net.” (Kurt Knudsen, bankruptcy lawyer for Knudsen Legal Services of Syracuse)
For Democracywise, I’m Boris Sanchez.
(Boris Sanchez is senior with dual major in broadcast journalism and international relations.)
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