As in far too many areas of the country, Massachusetts is currently seeing the effects of the recession appear in bankruptcy figures.
The number of new people filing bankruptcy in the Bay State has risen 35% in the second financial quarter of the year versus the same time last year, and the number of filings has doubled over the past four years.
Several Massachusetts bankruptcy attorneys say the recession has caused more Americans to accumulate more credit card debt and spend through savings as they deal with growing unemployment.
In the second quarter, according to the report, Chapter 7 bankruptcies rose 58 percent while Chapter 13 bankruptcies actually dropped.
Timothy Warren Jr., chief executive of the Warren Group, believes that the increase in Chapter 7 bankruptcy filings stems from the increasing numbers of individuals out of work and out of income.
"It’s easier to qualify for Chapter 7 [with a lower income]," he told Todd Wallack of the Boston Globe.
Earners with higher incomes cannot usually file for Chapter 7 bankruptcy because they are expected to use that income to pay off their debts, even if that payment comes through a Chapter 13 bankruptcy payment plan.
The troubles in Massachusetts have gotten worse as credit card companies increased interest rates on outstanding balances, saddling borrowers with growing mounds of debt.
“We are having a snowball effect,” said Anthony Frate, an attorney in Stoneham, Massachusetts, who focuses on consumer filing bankruptcy cases.
“People try to hang in there for a while, but they can’t anymore – particularly when credit card companies are jacking up their interest to 25 percent or 30 percent. People are just overwhelmed.”
Bankruptcy attorneys believe the filings have picked up speed as the recession hits home for many Americans.
Many expect more people to turn to filing bankruptcy over the next few months because bankruptcies tend to occur later in a poor economic cycle.
“People don’t file bankruptcy when they are still getting unemployment benefits,” says Robert Josephs, a bankruptcy attorney from Jamaica Plain.
“They file when their unemployment runs out.” Josephs says many of his clients filed for bankruptcy after they fell far behind on credit card bills.
Other clients faced legal judgments stemming from nonpayment on loans.
The unemployment rate in Massachusetts stood at 8.6 percent through the end of last month, a figure not seen since 1992.
The underemployed face troubles of their own, including mandatory salary reductions and unpaid furloughs that take chunks out of income they had already budgeted into paying expenses.
Josephs told the story of one particular client who filed for bankruptcy after she could not pay her mortgage.
The mortgage company foreclosed on her home in East Boston and then sued her in court and won a $150,000 court judgment for the remainder of the money it was owed.
“She was never going to pay for that,” Josephs said.
Residents of Massachusetts and Americans all over are facing similar dilemmas, and more and more find themselves turning to filing bankruptcy protection.
Source: The Boston Globe