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Published: Sunday, 10/2/2005

Area bankruptcy filers usually deep in credit card debt

BY JON CHAVEZ
BLADE BUSINESS WRITER
Ryan Gerace, managing attorney at Rauser and Associates, a local law firm specializing in bankruptcy, says people don't realize missing a few credit card payments will result in higher financing rates. He said people frequently use credit to maintain their lifestyles. Ryan Gerace, managing attorney at Rauser and Associates, a local law firm specializing in bankruptcy, says people don't realize missing a few credit card payments will result in higher financing rates. He said people frequently use credit to maintain their lifestyles.
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Awash in a steady flood of bankruptcies in the last five years are everyday northwest Ohioans unsuccessfully using credit cards as life preservers.

But instead of staying financially afloat, they are drowning, pulled under by bills and lack of income.

Bradley Bost of Bryan filed bankruptcy in July because his steady income as a factory worker couldn't cover house payments, an unexpected medical treatment for his son, and, finally, airline tickets used to visit a sick relative that were charged to a credit card.

"That's what put us over the edge," he said. "Things just kept progressing and we got further and further behind."

Eventually, the couple lost their house to foreclosure, he separated from his wife, and he borrowed against his 401(k) savings account in a failed bid to avoid bankruptcy.

To get a handle on who is filing to wipe out bills or to establish a long-term payment schedule, The Blade inspected the 1,023 filings made in July in U.S. Bankruptcy Court in Toledo. The court covers 21 counties in northwest Ohio.

Among the key findings:

  • Filers generally are not living lavish lifestyles.

  • Credit card bills are the most common problem, listed in more than half the cases. But medical bills, mortgages, and student loans also are cited frequently.

  • On average, most have a modest household income (under $25,000 a year) and few possessions beyond a house and a car. But their bills and debts, including a mortgage, typically are twice their assets.

  • Most filers are couples, but many are women who end up in bankruptcy after a divorce. Few filers held professional jobs; most were factory workers, store clerks, truck drivers, security guards, or work other service-oriented jobs.

  • Lucas County had the bulk of filers, at 38 percent of the total cases.

    Hancock, Wood, and Allen counties were the only other counties contributing more than 5 percent.

    In other words, some people were living on the edge, able to pay their bills on time, but perhaps not in full, as long as nothing unexpected occurred. When it did, such as a job loss, they frequently turned to easy credit to pay living expenses.

    Then, they were in trouble.

    John Graham, a Toledo attorney and bankruptcy trustee for the Toledo court for 15 years, said it is not surprising so many people file, given their income.

    "How would you like to be making $25,000 a year and trying to live on that?" he said. "Mostly, these are desperate people, and desperate people do desperate things."

    Dawn Hamilton of Maumee was done in by a divorce and student loans. She filed in July for Chapter 7 liquidation with $2,135 in assets and $95,391 in liabilities, most for credit card debt and a $25,000 student loan.

    Many of her bills were incurred when she was married, such as taking out a student loan for her to get a nursing degree from Owens Community College.

    "I thought once I get my education, and with my husband's income, we'd be fine," the 29-year-old said. "I never anticipated getting divorced and having all this debt. When I filed, I didn't have anything but the clothes on my back. I wasn't working because I was a full-time student and a mom."

    Going bankrupt because of the unanticipated happens frequently to people who stretch their incomes too thin, said Dave Fickel, clerk of the Toledo court.

    "Now, you can talk about whether they planned correctly for that, but this whole notion that people are perpetuating a fraud and planning a bankruptcy is just not the pattern that you see."

    Doug Dymarkowski, a Sylvania attorney and bankruptcy trustee with the Toledo court, said those who file mostly are "average blue-collar Joes just trying to get by."

    By choosing July to find a reasonable picture of who is struggling financially in northwest Ohio, The Blade examination likely avoided the expected glut of filers this month and next as people try to beat the more rigid filing standards.

    A reform law, effective Oct. 17, will make it harder to file for any protection from creditors, and fewer people likely will be eligible to file for Chapter 7 to have their debts erased and instead will be treated under the Chapter 13 wage-earner repayment section.

    Some experts have credited the upcoming law changes with the increasing number of local bankruptcies, but Mr. Fickel blames it on the struggling local economy.

    Filings have risen locally at a faster clip than elsewhere. Since 2000, filings are up 19 percent a year locally, nearly triple the 7 percent national rate. In the other four courts in Ohio's northern district, filings for the period are up 15 percent in Cleveland and Akron, 14 percent in Youngstown, and 12 percent in Canton.

    For the first half of the year, filings locally are up 20 percent over last year, but just 4 percent nationally. They are up 21 percent in Youngstown, 13 percent in Cleveland, 11 percent in Akron, and 9 percent in Canton.

    In one surprising finding by The Blade in the July filings, the average household income for all cases was just $2,076 a month, or about $25,000 annually. That's half the statewide average household income of $50,263, and far below the Lucas County average of $61,071, according to the Ohio Department of Taxation.

    Also in the local bankruptcies filed in July, the amount of assets claimed by filers was $56,320. The average amount of liabilities was $101,217.

    About 14 percent of filers in July were unemployed or disabled, or retired and living on a fixed income.

    Also perhaps surprising, northwest Ohio's factory-based economy played a role, but not a large one. In 164 cases, at least one filer, and sometimes both, said he or she was a general laborer or factory worker. Those occupations have eroded heavily locally, as companies have downsized, cut overtime, or left in recent years.

    Mr. Bost, 29, said he didn't live the high life, but used his credit cards to help get by. He made $35,000 in 2004 at his hourly job at an auto-parts plant. But the financial noose began to tighten once his regular three hours a week of overtime vanished.

    He and his wife, Mary, may have started a family faster than was fiscally prudent, he said. Needing more space, they bought a house in Stryker, Ohio, but when their second child had birth complications, they took out a loan to pay the medical bills, and then refinanced, and took a second mortgage, he said.

    Next, he had car problems and bought a new vehicle. Finally, when Mrs. Bost's grandmother was ill, they used credit cards to buy airline tickets for visits.

    "There were a lot of things that weren't a necessity, but it seems like we always had bad luck too," he explained. The couple is getting a dissolution.

    "It would be ... interesting if you could look at bankruptcies by neighborhood," said Jeff Morris, a University of Dayton law professor specializing in bankruptcy, and a former resident scholar at the American Bankruptcy Institute in Washington.

    "If you could do that, I bet you'd find that the neighbors of those people who filed bankruptcy also are struggling but they didn't file because they didn't get laid off," he said.

    Nearly half of the local filers in July were married, a third were single, and about one of every six was divorced or separated. Marital breakups can push people into bankruptcy.

    Ms. Hamilton, who had debts with her husband and then divorced, dropped out of school to get a job with hopes of paying off her mounting debts and to support her 7-year-old son.

    "I was working. I was strong. I said, 'I can do this' - but the debts were just too much," she said. The couple's home and vehicles were repossessed.

    Ryan Gerace, managing attorney at Rauser and Associates, a local law firm that specializes in bankruptcy, said people frequently will establish a lifestyle and use credit cards to maintain it. They don't realize, he said, that missing a few payments results in higher financing rates by credit card companies, which means higher bills.

    A Port Clinton couple, who asked that their name not be used, said their bankruptcy was because of not knowing that credit card interest rates skyrocket after missed payments.

    They owned a sailboat charter business on the Great Lakes, but had "one bad season" and used credit cards to stay in business, eventually missing payments and having the interest rate increased. They filed for bankruptcy, listing liabilities of $263,375, with more than $100,000 in credit card debt.

    Mr. Graham, the Toledo bankruptcy trustee, said, "You'll find a lot of credit card debt tied to medical bills.

    "And if you look at seniors, there's a lot of people who thought they were going to live on $1,000 a month, and that just isn't going to cut it nowadays, so what are you going to do?"

    Some experts expect to see more senior citizens nationally filing for bankruptcy protection.

    Lata and Bill Ritter, of Sandusky wanted a better retirement nest egg, but downsizing by Chrysler Corp. in the early 1990s forced him into early retirement at a lower pension than the couple planned.

    To augment their income, Mr. Ritter, 75, worked as a self-employed janitor.

    "Our income wasn't really enough to live on," said Mrs. Ritter, 70. "You don't go around cleaning other people's toilets because you love it."

    Last year, a railroad tie fell and crushed Mr. Ritter's foot when he was at work. He had one employee, so Mrs. Ritter used cash advances from credit cards to pay the worker, taxes, business obligations, and her husband's medical bills.

    "I did it even with our income cut in half," she said. "There wasn't any intention not to pay our bills. I was borrowing to live on for that year while waiting for our [injury] settlement."

    Mrs. Ritter said filing bankruptcy was hard. "The only thing I can think of is sometimes bad things happen to good people," she said.

    Mr. Graham, the attorney, said obtaining credit easily, running up bills, and then filing bankruptcy has become almost a social safety net for some people with lower incomes. It isn't unusual, he added, for people to file a second time.

    The federal government reported recently that household income fell for the fifth year running, while the number and percentage of households in poverty also rose. In the last 10 years, credit card, auto, and mortgage lenders all have pushed their goods on borrowers with credit problems or limited credit histories who don't qualify for cheaper, prime loans.

    "A credit card company will give a card to anyone who wants one," said Mr. Dymarkowski, the attorney and trustee. Further, it has become acceptable to own a cell phone and have cable television, even if someone has problem paying bills, he added.

    Ms. Hamilton, now a dental office receptionist, said just two months after filing bankruptcy she continues to be offered more credit.

    "I still get loan offers, credit card offers all the time and I just rip them up," she said. "Creditors know I can't file bankruptcy for six years, so they want me to start borrowing again."

    The upcoming bankruptcy law reforms, said Mr. Graham, the attorney, likely will have little effect in northwest Ohio because of the easy credit.

    Those with little ability to repay are still going to receive credit and continue to seek bankruptcy, he said.

    Mr. Fickel, the Toledo bankruptcy clerk, said most people like those who filed bankruptcy in July are likely to still get Chapter 7 relief under the reforms because the first hurdle they would face, and be able to clear, is whether their annual income is less than a benchmark $36,109 for Ohio.

    After the new law takes effect, the court may have a drop in filings from the more than 1,000 each month for the past five months, but there will be hundreds of cases every 30 days, he said.

    "The economic circumstances that we're in are such that people will still need to file," he said.

    Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.



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