Bankruptcy filings in northwest Ohio are on the rise, but the proportion of people seeking to repay their debts rather than liquidate them is on a sharp decline.
Experts say that stems from fewer jobs and more people under financial stress without income to try to work out a plan to repay their overdue bills.
Almost 800 people filed for bankruptcy protection last month in 21 northwest Ohio counties, up 67 percent from the same month last year, according to the U.S. Bankruptcy Court in Toledo. To date this year, 6,808 cases have been filed, up 33 percent from the same period last year and on track to be one of the top five highest filings years ever.
But different this year, locally and nationally, are fewer people seeking Chapter 13 wage-earner repayment cases.
Locally, those filings are down 24 percent from last year, while Chapter 7 liquidation cases are up 43 percent. Most of the cases are personal bankruptcies, not businesses.
"In order to qualify for a Chapter 13, it presumes you have income to repay your debts," Toledo bankruptcy attorney Gordon Barry said.
"Boiling it down to its simplest: It's [declining] because less people have the ability to repay."
Federal reforms enacted in 2005 made it tougher to qualify for Chapter 7, based in part on income. But with high jobless rates and reduced income, more people are eligible for Chapter 7 and take that route because they aren't financially able to try to reorganize their bills under a Chapter 13 filing.
In northwest Ohio, 611 Chapter 13 cases have been filed this year, and 6,177 Chapter 7 cases have been filed.
Nationally, there has been a similar pattern. Three years ago, Chapter 13 cases amounted to 42 percent of all U.S. personal bankruptcy filings. But that dropped to
39 percent in 2007, to 33 percent in last year, and to 28 percent through the first half of this year, according to the American Bankruptcy Institute.
Amy Stoner, a Toledo bankruptcy attorney, said under the federal law, a filer's income in the past six months is compared to the area's median income. Those with income above the median must use Chapter 13, those below use Chapter 7. Under Chapter 7, a filer can ask to keep a vehicle and home if he has evidence of the ability to make the loan payments.
But Ms. Stoner said many clients are choosing not to keep their homes because they can no longer afford the payments.
"They are just walking away from their homes," she said.
Data from the Census Bureau data revealed that Toledo was the nation's eighth-poorest city in 2008, with nearly one of every four residents living below the poverty line.
Local bankruptcy attorney Drew Wood said, "In the bad economy with more people out of work, I think what's happening is more and more people are coming in under the median income. "And they don't necessarily need to be unemployed. It could be that the hours they are getting are fewer, so they can't meet their debts and obligations anymore."
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