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Bankruptcy on the Rise Locally

Monday, December 15, 2008

Oklahoma is one of the top states in the number of bankruptcy filings. And, statistics show that bankruptcies are increasing in this part of the state.

Muskogee Attorney Gerald Miller, Chapter 7 trustee for bankruptcy cases in the Oklahoma Eastern District, said most people file bankruptcy about two years after they start getting into financial trouble.

"When the Bankruptcy Act (of 2005) was passed, there was about six months before it became effective," he said. "And a lot of people filed during that time period that would have probably filed the following two years. Well, it's been two years, and what we have seen has been a trend in increase every quarter since the act's passage. We're getting close to about where we were at before the bill was passed in a normal year."

Miller said the act created additional hardship for many debtors.

"I know of at least two people who died because of the bill," he said. "One person killed himself, and another person worked himself to death because he didn't qualify."

A graph compiled by the United States Bankruptcy Court, Eastern District of Oklahoma, shows a steady rise from 2,553 cases in 1999 to 4,905 in 2004. A spike of 7,109 cases occurred in late 2005 shortly before the Bankruptcy Act of 2005 went into effect. The act made filing for bankruptcy much more difficult.

After a drop down to levels similar to the mid-1980s, the numbers are now rising again. Miller says that is an inevitable return to the previous situation.

Miller said the Bankruptcy Act failed to stop people from filing for bankruptcy.

"The underlying causes of bankruptcy have not been addressed," he said. "Those were: no health care insurance, loss of a job, loss of a spouse's income through death or divorce, and gambling. Those underlying reasons have not changed, so all those people that filed in advance are gone, and now we're two years out, and people in the next generation that is facing those same hardships are filing bankruptcy."

Miller said the act is fundamentally flawed because it lacked participation from anyone except the banking industry.

"They paid $62 million to Congress to get it passed," he said. "Literally there was no input from any source other than a lawyer for the credit card industry, so it has a lot of provisions that make it more difficult or slows people down. The reality is, when you're getting garnished, you're going to file bankruptcy because you have to survive."

When one local man was forced to file for bankruptcy, he took it hard.

"I felt like less of a man because I couldn't provide for my family," said Joe, who spoke to the Phoenix on a condition of anonymity.

Joe said he first took it as a matter of pride that he would clear his debts on his own. The money problems began with factors outside of his control.

"It started with the economy," he said. "For seven or eight years, I used to commute to Tulsa. With the vehicle I had, gas was costing me $220 a week."

The trouble worsened when Joe fell behind on his car payments, and the vehicle was repossessed.

Another blow came when a court started garnishing his check.

"I went to a credit counselor that created a budget for me but did not include the creditors I owed money to," he said. "My wife mentioned bankruptcy, but to me that was a last resort. We went to another credit counselor who told me the same thing."

With great reluctance, Joe sought out a bankruptcy attorney. He knows the entire process is going to be difficult. But he is determined to come out clean on the other side of this life event.

"There is a company out there that can teach me how to properly manage my money thereafter," he said. "I am real thankful that there are organizations out there to help. There are people out there who will help you."

For people in higher income brackets, they may file for Chapter 13. Muskogee attorney William Mark Bonney, a Chapter 13 trustee, explained the difference.

"Chapter 13 allows debtors to restructure their car loans typically or other debts," he said. "It also allows them to make up the missed payments on their home mortgage, so they can keep their house, which are two things they can't do in a Chapter 7 case. The reason someone will file Chapter 13 is to keep their house or some cars that they want to keep, or, a means test shows that they can afford to repay some of their creditors."

Chapter 13 plans run from three to five years. They usually take the form of a wage deduction so their payments come right out of their paycheck.

Bonney said the cases he handles are mostly people making between $50,000 and $80,000 household income. He thinks the Bankruptcy Act of 2005 has helped with Chapter 13 cases.

"Overall I think the new law has increased the payment to creditors," he said. "About 25 percent of the cases I'm seeing are paying substantially more to their creditors because of the new law. They're having to pay at least $10,000 more back to their creditors than they would have had to pay had the law not changed."

However, Bonney said the way the Bankruptcy Act was passed was not standard practice.

"My understanding is that the bill was written by a particular lobbyist firm," he said. "The bill was not made available to the public until the day before it was introduced in the Senate. And it was passed in the Senate and passed in the House within a month, and there was with no conference committee. The House passed the identical bill that the Senate passed with no amendments, and the president signed it, and those are very unusual things."

Miller predicted that during the next year, the Oklahoma Eastern District will continue to see a rise in bankruptcy filings, eventually to levels similar to before the act's passage.

"A lot of these things they were saying in the bill simply were not justified," he said. "Like consumer bankruptcy fraud. There is very little consumer bankruptcy fraud because most consumers don't have any money to cheat. The school teacher, police officer or factory worker going month to month just barely getting by; they don't have enough money to hide anything. They're just surviving."


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