Bankruptcies rise to a record level throughout state .... .... ....
By Ted Evanoff
ted.evanoff@indystar.com
February 19, 2005
Long known as a manufacturing state, Indiana has one other notable economic trait -- bankruptcy.
Even as Indiana's economy rebounded last year, personal bankruptcy filings rose to more than 55,000 statewide, a record volume.
Lawyers said rising credit card burdens, especially among laid-off factory workers, contributed to the increase.
No one is certain, however, exactly why the state's bankruptcy volume rose in 2004 -- a year when Indiana's economy finally created jobs, 10,000 of them, after losing about 100,000 chiefly in factories from 2000 to 2003.
Federal bankruptcy courts in Indiana took in a record 55,177 personal filings for the year that ended Sept. 30, up 0.4 percent from 2003. Nationwide, bankruptcy filings declined 2.4 percent, reported the Administrative Office of the U.S. Courts, a federal agency that gathers bankruptcy statistics.
"Even though we're creating more jobs in Indiana, people take awhile to get their feet back beneath them," said Indianapolis lawyer Mark Zuckerberg, a past chairman of the Indiana State Bar Association's bankruptcy section. "Just because they have a job doesn't mean they have an immediate solution to their problems."
The credit card factor
Nationwide, bankruptcy filings have doubled since 1994, rising even in years with low jobless rates. Lawyers and economists trace the bankruptcy trend to the proliferation of credit cards over the past two decades.
Reforms are being discussed in Washington, including a proposal by Sen. Charles Grassley, R-Iowa, that lawyers say favors a credit card industry stung by unpaid debts.
Grassley's measure would discourage personal bankruptcies under Chapter 7 bankruptcy law, which enables filers to erase most debts and start over. About 80 percent of Indiana's filers use Chapter 7.
Grassley's proposal would encourage Chapter 13 bankruptcies. This would leave debts intact and put in place a repayment plan.
Encouraging restraint
Reformers say the changes would restrain flagrant abusers of cards and those who spend without thinking of the consequences.
"Nationwide, most personal bankruptcies are due to personal financial irresponsibility," said Matt Will, a finance professor at the University of Indianapolis. "It has nothing to do with job losses. The economic boom that started in the 1980s has been almost nonstop, and the number of bankruptcies has gone up."
Indianapolis lawyers, though, say credit card bills piled up during the lean years, straining the resources both unemployed workers and people with inadequate health insurance who put medical bills on their credit cards.
Across the nation, 1.58 million personal bankruptcies were filed in the year that ended Sept. 30, down 2.4 percent from the 1.62 million filings one year earlier, reports the Administrative Office of the U.S. Courts.
A recent Harvard University study of 1,771 bankrupt U.S. residents said 54 percent said medical bills paid with credit cards pushed them into personal bankruptcy.
Even after the economy fully recovers, lawyers say, bankruptcy volumes could remain high in Indiana, a result of credit card debts accumulated over the past few years.
"I don't see people coming through my door who have been negligent with their credit cards," said Indianapolis bankruptcy attorney Nancy Endsley. "We have a lot of bankruptcies because people are losing jobs they are replacing with jobs that don't pay as much."
A challenge to many
Unpaid credit card bills staggered not only the unemployed who used credit to get by, bankruptcy lawyers say, but also working families without medical insurance, teenagers, older workers pushed into retirement by downsizing companies and single employed women with children in their homes.
"When they come to see us, they have no hope of ever digging out from under that debt," said Indianapolis bankruptcy attorney Penny Carey. She estimates 90 percent of her clients were tipped into bankruptcy by unpaid credit card debt averaging $25,000 per household, and some reaching $80,000.
Carey, a lawyer since 1990, figures her clients in recent years generally had a difficult period, such as an illness, divorce or job loss. They relied on credit cards as a safety net.
Among her clients, Carey estimates 40 percent are single women; 33 percent ran up high medical bills with little or no health insurance; 25 percent have jobs; 15 percent are retirees; and 10 percent are teenagers. The numbers don't add up to 100 percent because some are in two or more categories.
"Very few are extravagant," Carey said. "It's usually an outside force that comes in and bears on what's going on."
Call Star reporter Ted Evanoff at (317) 444-6019.
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