Joel, that article is devastating. Here's a companion piece showing the human face of such extreme folly. I expect that very soon this dismal scene will be played out in far more communities than those of Tennessee. Lots of white collar folks livin' on the brink of disaster too.
nytimes.com
April 1, 2001
Many Americans Are Mired in Debt and Seeking a Path Out
By PETER T. KILBORN
MEMPHIS — In promoting a tougher bankruptcy law that President Bush could soon sign, credit card and automobile companies depict a culture of spendthrift deadbeats who are excused from their debts only to go off on another binge. But those are not the people who crowd the corridors of the Federal Bankruptcy Court in Memphis.
Three mornings a week, lawyers, lenders and sullen debtors pour into the plastic chairs in George Stevenson's meeting room on the sixth floor of a black glass cube overlooking the Mississippi.
Sitting at a folding table with a computer terminal, Mr. Stevenson, a bankruptcy trustee, works with the rhythm of a clock, ticking through a thick docket of debt-payment plans for the court's three judges to approve, adjust, dismiss or schedule for trial.
Some of the people here, like others among the more than a million nationwide who declare bankruptcy each year, build their own traps, like working the cash machines at Mississippi's neighboring casinos. In going bankrupt, they raise costs for other debtors, because lenders raise interest rates and fees to cover their losses. But many of the Americans who go bankrupt have only hard luck to blame.
On this morning, Carl Mauk, 46, edged up to the table and steadied himself with his cane. The steroids he takes to control his severe arthritis have triggered diabetes and left his arms covered in sores. His wife, Priscilla, 42, is homebound with a heart condition.
Because of their health, the Mauks have quit jobs that together paid them more than $4,000 a month, his as head of a crew that laid water pipe for a utility and hers as a secretary. With little more than the $400 a month from Mr. Mauk's mother, who lives with them, they have fallen behind on their court-approved bankruptcy plan, the $1,800 they agreed to send Mr. Stevenson each month for disbursal to creditors.
"Isn't it time to give up the house?" Mr. Stevenson asked. The Mauks' only measurable assets are her turquoise 1995 Toyota MR2, worth $6,000; his 1989 Volvo 740, worth $1,000; and their two-story brick house on a hill, worth $180,000. Their two mortgages, Mr. Stevenson said, come to $171,000, so by selling the house, "you might get something in the $6,000, $7,000 range."
Calmly, Mr. Mauk explained: "I just need a disability check. It's going to be in the mail." He said his former employer had delayed sending him an overdue payment. Ms. Mauk, meanwhile, is applying for a federal disability benefit that could bring in $500 a month. Rather than ask a judge to dismiss the case and compel the Mauks to sell their home, Mr. Stevenson gave them two more weeks to come up with a payment.
With the economy slowing and unemployment in cities like Memphis rising, the American Bankruptcy Institute reports that numbers of consumer bankruptcies nationwide are creeping up, too. Last year, there were 1.2 million personal bankruptcies. This year, that number is expected to rise. According to data compiled by Lundquist Consulting for banks that issue credit cards, bankruptcy filings increased 20 percent from Jan. 1 to March 3 of this year over the same period last year.
In Tennessee, the relative numbers of personal filings lead the nation. One in 43 Tennessee households filed last year, according to the institute, compared with 1 of 83 in California and 1 in 118 in both New York and Connecticut. According to the Administrative Office for the United States Courts, judges in Tennessee carry one of the heaviest bankruptcy loads in the nation.
Most of the cases come here, to United States Bankruptcy Court for the Western District of Tennessee. It is the second busiest in the country, after the Southern District of Georgia, when it comes to handling Chapter 13 cases, those in which debtors agree to pay off all or part of their debts over three to five years.
For this reason, Tennessee is a proving ground for the principal change in the proposed bankruptcy law, now being refined in a Senate- House committee. Last year, judges here steered 73 percent of the debtors into Chapter 13, rather than into the more protective Chapter 7, which does not require people to repay their loans. Nationwide, 70 percent of all cases are filed under Chapter 7. (Business bankruptcies fall under Chapter 11.)
To the advocates of the tougher legislation, protection from bankruptcy is consistently abused.
"Declaring bankruptcy is too easy an option for those who have the ability to pay but not the willingness," said Ken Guenther, chief executive of the Independent Community Bankers of America, an association of 5,400 banks, most of which issue credit cards.
Among the active Chapter 13 cases here, several support Mr. Guenther's point. A random search of March filings produced the case of a 40- year-old woman who has been in and out of bankruptcy four times in the last eight years, using the courts in Atlanta and Memphis to close the gap between her meager earnings and her high living expenses.
There was also a 62-year-old machine tool repairman who earns $36,000 a year. He and his wife had been able to carry the $177,000 mortgage on a four-bedroom house worth $185,000, but they got carried away.
The couple bought a 1998 Lincoln Navigator and a 1998 Chevrolet Blazer, incurring a debt of $48,000. They have run up $9,000 in debt for clothes and electronic goods. They bought a $10,000 woman's Rolex watch.
Neither the current law nor Congress's proposed law is likely to let them keep their property.
The couple could file under Chapter 7 or Chapter 13. Under Chapter 7, they would stand to lose their home and cars, but most of their remaining, unsecured debt would be forgiven. Under Chapter 13, they would most likely keep their property, but depending on their income and basic living expenses, they would also commit to repaying 10 to 100 percent of the unsecured debt. Either way, the unsecured lenders — like credit card companies and doctors' offices — stand to lose all or a part of what they are owed.
Some studies of bankruptcy, however, suggest that such people are in the minority. In Senate testimony in February, Randall J. Newsome, a former president of the National Conference of Bankruptcy Judges, cited a conference-sponsored national study showing that the median household income for personal bankruptcies was $21,540, about $15,000 below the national median. The study was based on 3,151 randomly selected cases filed in 1998. |
