Boomers look to bankruptcy system for relief :
Chattanooga bankruptcy lawyer Mark Young said more often than not, his baby boomer clients who file for bankruptcy are not frivolous spenders.
Rather, he said, they simply face insurmountable financial burdens as they struggle to put kids through college and support aging parents.
"People are getting squeezed," said Mr. Young, who has practiced in Chattanooga for almost 30 years. "A lot of baby boomers are seeing incredible debt loads. All the sudden you're just keeping your mouth above water to keep from drowning."
Competing financial obligations to parents and children, health care costs, mortgage debt and inadequate retirement planning are all adding up for many older Americans who opt for bankruptcy, said some Chattanooga bankruptcy lawyers and credit counselors.
Their perceptions are echoed in a recent study by John Golmant and Tom Ulrich, researchers at the Administrative Office of the U.S. Courts, which found that older Americans are filing for bankruptcy at faster rate than the general population.
The number of bankruptcy petitioners over the age of 45 increased from 27 percent of all filers in 1994 to 39 percent of filers in 2002, according to the study published in the May 2007 issue of American Bankruptcy Institute.
Conversely, the percentage of filers under 25 years old decreased from 10.6 percent to 4.2 percent of all filers in the same period.
The fastest growth occurred in the percentage of petitioners over the age of 55, which increased by nearly 46 percent from 1994 to 2002, though the age grouping still comprised only 14 percent of all filers in 2002.
Credit card debt is often the immediate cause of bankruptcy filings, but many of these debtors are using credit cards as a life-line to pay for prescriptions and high insurance deductibles, said Lois R. Lupica, professor at University of Maine School of Law and resident scholar at American Bankruptcy Institute.
"People don't have the money, so they use the credit cards," she said. "The increasing credit card debt can be a deceptive cause of people filing for bankruptcy, until you look behind what's being charged. The underlying causes have not been addressed."
Kyle Weems, a Chattanooga bankruptcy attorney, said, "We've filed many more boomer (bankruptcy) cases recently because of health problems. They have a lot of problems with coverage until they get to Medicare. There's that gap from 50 to 65."
Bankruptcy filing rates in Chattanooga and nationwide have fluctuated in recent years, due to bankruptcy law reform.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more complicated and more expensive to file for bankruptcy, and required debtors to receive credit counseling before and after filing. Bankruptcies nationwide surged before its passage in October of 2005 and dropped steeply in the months following.
Bankruptcy rates in Chattanooga also dipped significantly in 2006, but now the numbers appear to be bouncing back. In the first three months of 2007, 1,259 people in Chattanooga filed for bankruptcy, compared to 917 in the same period of 2006, according to the Eastern District of Tennessee Bankruptcy Court.
Tracy Johnson, education specialist with the Consumer Credit Counseling Service in Chattanooga, said, "I don't want to say the (reform) law didn't work, but what the law was intended to do was make people come to a legitimate credit counseling agency and learn their alternatives before they went bankrupt."
Instead, many debtors now see credit counseling as an obligatory stop on the road to filing for bankruptcy, she said.
Consumer Credit Counseling Service will work with a customers' creditors to lower payments and interest rates, as well as formulate a budgeting plan for debtors, Ms. Johnson said. In many cases these efforts free up enough money for people to avoid bankruptcy altogether.
Mr. Young said there is hope for breaking the cycle of financial illiteracy and indebtedness.
"I think some of the young people are starting to see the faults of the baby boomer generation and the mistakes of their parents," he said. "The cycle is only going to be broken with the true education of people in their teens and twenties and I think that's slowly starting to turn around."
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