“Financial stress,” breathes a female voice in the radio ad. “It starts out as an irritation, and over time it grows larger, scarier and uglier.”
“You’re paralyzed because it’s sitting on your chest, its weight pressing down,” the voice continues, building to a nervous, high-pitched climax.
“There is a way out,” a different, more reassuring female voice says. “One in 77 families will file bankruptcy in Boone County this year due to unexpected medical bills and unpayable interest on their credit cards. You’re not alone.”
The Bankruptcy Center’s ad, running for the past few weeks on KBXR/102.3 FM, is one of many on Columbia radio and television stations offering bankruptcy as a solution. The burst of marketing reflects a simple fact: The bankruptcy business is booming. New or bigger exemptions that went into effect last week may make filing for Chapter 7 even more attractive.
“(It’s) very competitive because there’s so much of it happening,” said Harvey Hoffman, a partner in Columbia’s Shurtleff, Froeschner, Bunn & Hoffman, also known as The Bankruptcy Center. Bankruptcy filing, especially Chapter 7 filing — the most common type for individuals — is on the rise in Missouri. In 2003, 37,380 cases were filed in the state, up 10 percent from 2002, according to the American Bankruptcy Institute. In the first half of 2004, 19,287 bankruptcies were filed, up slightly from 2003, when the number was 19,170. According to the Consumer Federation of America, 1.6 million cases were filed nationwide in 2003, over twice the number from 1993.
“It’s a sign that things aren’t going well for the economy,” said Brian Baehr of the Baehr Law Firm in Columbia.
Bankruptcy filers from all income levels
Hoffman said it’s difficult to describe a typical bankruptcy filer, as they come from all income levels. But one common theme among them is that they’ve been dealing with debt for a long period of time when an unexpected expense pushes them to the breaking point.
Baehr cited three main reasons for filing bankruptcy: big medical bills, the loss of a job or wages, and divorce. Most of his work involves Chapter 7 bankruptcy, which he said tends to be faster and cost less than Chapter 13. Bankruptcy clients generally pay between $500 and $700, in addition to a $209 filing fee.
Although most people filing for Chapter 7 are forced to sell assets so proceeds can be divided among their creditors, Baehr said more than 90 percent of his firm’s Chapter 7 clients keep all of their property. Changes to the exemptions that went into effect Saturday include increased exemptions for automobiles, mobile homes, household goods and personal items. Already exempt under Chapter 7 was $15,000 in home equity.
It is the credit card companies and other lending institutions that suffer from an increase in bankruptcies. Credit card defaults have increased 55 percent since 2000, according to the Consumer Federation of America.
“Ninety percent of bankruptcy filers do it for the right reasons,” said Catherine Pulley of the American Bankers’ Association in Washington. But she said the ABA would like to see reforms so certain filers, particularly those with higher incomes, can’t file for bankruptcy when they have the ability to pay their debts. She added that filers often don’t realize that bankruptcy remains a part of their credit history for 10 years and can force them to pay higher interest rates or have difficulty getting a loan. Some lawyers persuade their clients to file without explaining all of the implications, she said.
In the Western Missouri Federal District Court’s western division, where Boone County residents file, there were 8,065 filings in 2003. That was a 9 percent increase from 2002 and a 54 percent increase since 1993.