Vermont bankruptcies up sharply in 2007
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By Bruce Edwards Herald Staff - Published: December 31, 2007
Bankruptcies in Vermont are on the rise again, surging 40 percent in 2007, reflecting in part the mortgage crisis that has swept the country with its resulting foreclosures, according to several bankruptcy lawyers in the state.
As of the close of business on Friday, U.S. Bankruptcy Court in Rutland reported 871 cases filed in 2007 compared to 620 cases filed the previous year. While bankruptcies increased significantly in 2007, the number of cases remain far below the record year of 2005 when 2,616 cases were filed.
Divorce, loss of a job and medical expenses are the usual culprits that force someone to file for bankruptcy. But this year the increase in Vermont's bankruptcy caseload is also reflected in the number of foreclosures.
"Then we've got the wonderful joy of the adjustable rate mortgages and foreclosures having gone crazy," said Rebecca Rice of Cohen & Rice in Rutland.
White River Junction lawyer Michelle Kainen said she noticed the problem earlier this year. "I can tell you in the early part of the year that was almost exclusively driving every bankruptcy I filed," Kainen said. "I remember in January and February thinking what is going on in the world and why are all these people coming in here and losing their houses."
In Chittenden County, Todd Taylor blames the subprime mortgage fiasco. "There's a tremendous amount of foreclosures all over the place," Taylor said.
He recounted the story of one client whose adjustable rate mortgage ballooned from $1,000 to $1,400 a month and then jumped another couple of hundred of dollars six months later.
Lawyers also attributed the increase in filings to a renewed awareness on the part of the public that bankruptcy is still available to debtors. Prior to the implementation of the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, many debtors rushed to file.
"There was a perception out there that bankruptcy wasn't available anymore or was really, really very hard and people are suddenly realizing that's not the case," Rice said.
Rutland lawyer John Canney III agreed that the jump in filings two years ago created fewer filings last year and that 2007 reflects a return to a more normal number of filings.
However, lawyer Richard Scholes of Montpelier said that credit card companies continue to discourage debtors from filing bankruptcy, telling some of his clients that bankruptcy is not available. "The creditors are lying to people right and left," he said.
According to U.S. Bankruptcy Court in Rutland, of the 870 cases filed as of Friday, 629 were Chapter 7 cases. There were also three Chapter 12, or farm bankruptcies, and 239 Chapter 13 cases. No figures were available Friday on the number of Chapter 11, or business reorganization cases.
In Vermont, Chapter 13 cases represent 27 percent of all bankruptcy cases filed in the state.
Kainen said given the mortgage crisis many more homeowners are filing for Chapter 13.
"People are trying to save their houses," she said.
Kainen said that under Chapter 13 a debtor in arrears on their mortgage payments and other secured debt can repay their obligations over a three to five year period, provided they also keep their mortgage payments going forward current.
Another contributing factor that helps drive bankruptcies is the economy.
Canney said the economy and the high cost of living, especially soaring fuel costs, has squeezed the financial resources of many.
"I think in southern Vermont with the credit crunch and the high cost of living, people are not able to make their obligations," he said.
Vermont is hardly alone in reporting a jump in bankruptcies.
There were 623,399 bankruptcies filed during the first three quarters of 2007, representing a 40 percent increase over the 444,789 cases filed over the same period in 2006, according to the nonprofit American Bankruptcy Institute, citing data from the Administrative Office of the U.S. Courts.
The totals include both consumer and business filings.
"Bankruptcies are up sharply from a year ago this period, reflecting a growing vulnerability in household economics," American Bankruptcy Institute Executive Director Samuel Gerdano said. "The continued stress on the housing market will likely fuel a continuation of this trend into 2008."
Contact Bruce Edwards at bruce.edwards@rutlandherald.com.
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