Personal bankruptcies on record pace
During the boom, Maggie Miley, 34, bought a house for $245,000 with an option-ARM mortgage. The payments were affordable, especially with her boyfriend paying half. But then he moved out and her hours performing facials were cut. In an economic downturn, “people don’t have as many important meetings and appointments to look good for,” she said.
She tried to sell, but owed far more than her St. Paul house is worth today. With a new commission-based job as an educator and salesperson for a skin care company, she hoped to modify her loan but was denied. The only way to get out from under the $50,000 second mortgage was bankruptcy.
Before housing values plummeted and the recession settled in, “I had never paid a bill late.”
Lower filings short-lived
Bankruptcy reform in 2005 seemed like a success at first. In the year it became law, 25,635 Minnesotans filed for personal bankruptcy, especially in the early fall of 2005 when consumers rushed to beat the mid-October switch. The next year, that number plummeted to 7,729.
But since then, bankruptcies have been steadily climbing. Last year, 21,302 people went bankrupt, and filings are on pace this year to exceed that number.
Another key tenet of the reform was to shift people away from Chapter 7 bankruptcy to Chapter 13, which requires a repayment plan. That failed. For every person filing a Chapter 13 in Minnesota this year, there are seven people filing a Chapter 7.
Chapter 13 bankruptcy used to be a popular tool for shedding some debts yet saving the house. Not anymore. Most people are too far behind, owe too much or earn too little to keep their home, Minneapolis bankruptcy attorney Curtis Walker explained while scrolling through recent cases.
“This woman is here because she lost a house and [the bank] is pursuing her for a $26,000 second mortgage on the house,” Walker said. “She wants to save her house, but she doesn’t have enough money to pay the amount behind and owes more than it’s worth.”
Of another client, Walker said: “He’s got a house, he’s way upside down on it. The county says it’s worth $205,000 and he owes $255,000 on it, and he’s about to retire.”
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