The number of bankruptcy filings in Massachusetts surged by 25 percent in the first six months of the year, as many consumers struggled with job losses, changing credit card terms and foreclosures.
The Warren Group reported Thursday that through June 30, 11,847 filers statewide sought protection through Chapter 7, Chapter 11 or Chapter 13 of the federal bankruptcy code.
That figure, which includes businesses and individuals, represents a 25.2 percent increase from the same January-June period in 2009. The sharp rise could put the state on track to surpass the rush of bankruptcies in 2005, before strict limits took effect.
“It’s telling the story that people are absolutely at their wit’s end,” said Vincent Valvo, group publisher for the Boston-based Warren Group’s real estate and financial publications. “It also tells the story of how overextended folks got.”
The most common bankruptcy filing is Chapter 7, which can completely erase many kinds of loans. The number of Chapter 7 filings in the state rose to 9,142 in the first six months of 2010, up 17.6 percent from the same period in 2009.
But the use of Chapter 13 rose dramatically, with 2,586 Chapter 13 filings in the first half of the year, up 62 percent from the same time in 2009. Chapter 13 filings can be used to work out payment plans to prevent foreclosures.
Winchester lawyer Nina Parker said many of her clients come to her office after lenders fail to offer permanent loan modifications to keep borrowers in their homes.
“People are feeling defeated,” said Parker, co-chairwoman of the Boston Bar Association’s bankruptcy section. “They do everything they can to comply with the (loan modification) programs, but the lenders don’t follow through.”
Richard Gottlieb, a bankruptcy lawyer in Boston, said high unemployment – the state’s jobless rate has been at 9 percent or above since September – has made it tough for many people to make ends meet. Many dual-income households struggle when one of the wage-earners lose a job unexpectedly.
“I’ve never seen it this bad,” Gottlieb said. “I’ve never seen this level of misery. ... It’s an incredibly small distance (for many people) between being able to make your bills and get on in life and becoming operationally insolvent.”
Kara O’Donnell, a lawyer with offices in Quincy and Hingham, said some of her bankruptcy clients pursue Chapter 13 filings as a way to keep their homes after lenders stymied loan modification efforts. But she said the vast majority pursue Chapter 7 filings, partly because they can be used to discharge credit card debts. She said Chapter 7 can’t be used to wipe out secured debt, such as a home loan.
Many consumers were caught off guard when credit card companies changed their policies during the past year. In some cases, O’Donnell said, a minimum monthly payment would jump from $200 to $400 or $500. Interest rate hikes for missing payments also skyrocketed, she said.
For most of her clients, bankruptcy is a last resort.
“They don’t just lose their jobs and go out the next day and file for bankruptcy,” O’Donnell said. “Most people will exhaust every last resource they have. ... Some of them will totally empty out their IRAs and borrow money from their families because they think it’s a temporary situation. But for most people, it’s not a temporary situation.”
Jon Chesto may be reached at jchesto@ledger.com.
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