Bankruptcy may show up in the unlikeliest of places

January 5th, 2009 by Mike Hinshaw

As the economic crisis spreads globally, domestic bankruptcy filings continue. You might not be surprised to read about high numbers of filings across the U.S., now infamous worldwide because of Wall Street’s risky financial products. But how about a country historically known for its unyielding reliance on personal thrift?

Says Jim Gallagher in the Jan. 4 St. Louis Post-Dispatch: “The number of people going broke is up 21 percent in eastern Missouri and 19 percent in Southern Illinois, according to mid-year figures from bankruptcy court. Foreclosures and job losses are shoving people over the financial cliff.”

Discussing some of the toniest zip codes in Florida, a Jan. 3 article in the South Florida Sun-Sentinel notes: “Last year’s economic pain showed up in a huge increase in business at bankruptcy court, where 20,222 new cases were filed in South Florida. Experts say we could see more of the same in the new year.” And a Dec.15, 2007 article from Reuters says that data from “the 12-month period ending in September” shows that “Tennessee saw the highest per-capita filing rate in the country, with 7.3 residents per thousand filing.”

But get this–the BBC reports that “[m]ore than 25,000 Scots could be made bankrupt in 2009,” according to PKF, “a firm of accountants and business advisers.”

That’s right: Scotland: bagpipes, kilts…and, now, sequestration, the Scots’ legal term for personal bankruptcy.

“PKF said when the final figures for 2008 are calculated more than 20,000 Scots will be subject to sequestration or a Protected Trust Deed (PTD),” quotes the BBC in a Jan. 2 article.

The firm found that more than 14 thousand Scots “were made bankrupt” in the first three quarters of 2008, which exceeds the total for all of 2007. Perhaps more troubling, analysis of “the most recent data from the Edinburgh Gazette, the official journal of insolvency where all personal bankruptcies must be listed,” shows “that in the three weeks before Christmas there were 1,661 sequestrations and 657 protected trust deeds taken out.”

The firm’s analysts, the BBC points out, “believe that the situation is going to get worse in 2009 as the full impact of the credit crunch continues and unemployment rises.”

Back in the U.S, Gallagher summarizes the basic advantages of filing personal bankruptcy and cites one insider who cautions not to wait until it’s too late.

“Bankruptcy reduces or erases debts. In the right circumstances, it may also save the family home and car. If you’re falling far behind on your bills, with no way of making it up, it may be the best option.

Bankruptcy stops repossessions and foreclosures, at least temporarily. But don’t wait until the sheriff is at the door. You’ll have to take financial counseling class before filing, and the repo man can show up in the meantime.

‘They always wait until the last minute. They think Uncle Fred is going to give them the money,’ ” said a regionally known personal bankruptcy lawyer.

The Post-Dispatch writer also boils the essential differences between Chapter 7 and Chapter 13 filings: “Congress wants people with good incomes to pay at least part of their debts. So, if you make more than median income, $65,000 for a couple with two children, you can’t automatically file a Chapter 7. You’ll have to pass a means test, or file Chapter 13.

Chapter 13, known as a ‘wage-earner plan,’ is best for people who are overdue on mortgages and car loans. You have to have a steady source of income, such as a job or a pension.”

Gallagher ends the piece with a bit of optimism and a call for those in trouble to keep their chins up.

“Most people who go broke are victims of circumstance,” he writes. “They were getting along fine until they lost a job or landed in the hospital. If that’s your problem, it’s nothing to be ashamed of.”

To get started with our primer on bankruptcy, click here–and take heart: Even though current circumstances evoke fears of the Great Depression, you are not alone.