As the Missouri economy strains and sputters, court records show that more people are filing for bankruptcy in the Ozarks.
While filings haven’t reached the highs seen in 2005, when debtors scrambled to file before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. The act steered filers to repayment plans rather than liquidation.
In 2005, filings hit 25,657 in the U.S. Bankruptcy Court’s Western Division, which comprises Springfield, the Joplin/Carthage area, Jefferson City, Kansas City and St. Joseph.
Local sources say the likely culprits behind the upward trend this time are the credit market and high unemployment.
Bankruptcies in the Western Division rose 19.3 percent in 2009 to 15,257 filings. Of those, Chap. 7 bankruptcies – which eliminate unsecured debts – accounted for the most, with 11,425, a 22.5 percent increase compared to 2008.
In Springfield, there were 3,014 bankruptcy filings in 2009, up 18.1 percent, and Chap. 13 filings, which allow for payment plans rather than liquidation, were up 13.4 percent, while Chap. 11 filings, which are for business reorganizations, essentially doubled to 40 in 2009.
“(Filing) certainly has increased in the last year and a half, and probably more of it is tied to real estate asset borrowers,” said attorney David Schroeder of David Schroeder Law Offices PC. “My observation is the Ozarks had more than its share of smaller real estate developers that would do a number of spec homes, one or two subdivisions, or maybe do things on a part-time scale, and when the real estate crash occurred, coupled with the tightening of lending, those people had no other recourse.”
The tight lending market and lenders’ terms also are making it more difficult for companies to restructure or reorganize, Schroeder said.
Unemployment also is pushing up bankruptcy filings, said Mike Cherry, president and CEO at Consumer Credit Counseling Services.
“There are a lot of people who are unemployed, and as their unemployment has been extended and eventually runs out, they are going to find that they need to unload some of that debt,” he said.
Unemployment in the Springfield metropolitan statistical area hit 8.2 percent in November, up from 8 percent in October and 5.9 percent in November 2008, according to U.S. Bureau of Labor Statistics. December unemployment statewide hit 9.6 percent, up from 9.4 percent in November.
“There are a lot of people out of work right now, or they are earning far less than they were accustomed to earning,” said John Deming Gore, attorney at RGG Law. “People are taking positions in different industries at far lower salaries and that reduction causes a lot of problems. With that reduced income, they rely on credit cards.”
Gore noted that while people used to try to hang on to their homes when filing bankruptcy, many of his clients are choosing to walk away from upside-down mortgages and payments they can no longer afford.
Cherry said unemployment is creating more medical debt, as people lose their health coverage, and that also can drive up bankruptcies.
Many simply don’t have adequate medical insurance.
“They come in here, through no fault of their own, because they had a major procedure or were diagnosed with cancer and they have $40,000 or $50,000 in medical bills and have no way to discharge that,” Gore said.
The 2005 bankruptcy act requires all parties that want to file for bankruptcy protection to complete financial counseling through an approved nonprofit credit counseling group. That counseling aims to help people understand how they got into financial straits, what their options are and how they can maintain stability in the future.
In 2009, Consumer Credit Counseling Service issued 11,000 certificates for bankruptcy counseling, Cherry said.
“My assumption is 99 percent of those people filed after going through counseling,” he added.
Gore cautioned, however, that just because people need a fresh financial start – particularly in today’s economy – doesn’t mean that they were irresponsible.
“There’s a stigma with bankruptcy and people ultimately draw the conclusion that they didn’t manage their money appropriately and it’s the person’s fault,” he said. “But a lot of people have medical bills that are just drowning them, or they have mortgages that they can no longer afford or should have never gotten into in the first place.”
