Iowa bankruptcies rose 26 percent in 2009

Bankruptcies in Linn and Johnson counties soared last year, outstripping even the 32 percent rise in bankruptcies nationally blamed on a weak economy.

The number of bankruptcies in Linn County shot up more than 36 percent, to 722. In Johnson County, 270 debtors sought the relief of bankruptcy, an increase of 35 percent.

Iowans filed a total of 10,041 bankruptcies in 2009, up 26 percent from 2008's 7,978. It was the largest number in four years.

Lawyers specializing in debt problems said the wave likely isn't over, given that many Iowans have been laid off recently or lost homes and belongings in the 2008 flood and are still struggling to avoid bankruptcy.

The rate of Iowa bankruptcy filings in 2009 was 3.41 per 1,000 residents, up from 2.67 per 1,000 in 2008 and 2.3 per 1,000 in 2007. Iowa ranked 34th among states in the rate of bankruptcy filings, according to Creditcards.com.

For many who need bankruptcy protection, overdependence on easily available credit cards eventually becomes unsustainable.

Cedar Rapids retiree John Lightfoot said he got in too deep with credit cards, as the introductory offers with low interest rates kept pouring in and the credit limits kept rising. When he began to miss payments, credit card issuers escalated his rates and charged penalties.

“You miss a couple, and it's up from 2 percent to 18 or 20 percent,” Lightfoot said. “That's a heckuva difference.”

By the time he sought protection in bankruptcy, court records show Lightfoot had about $76,000 in debt, most of it to a few large credit card issuers. He labored over the bankruptcy decision for seven months before deciding to file and swearing off credit cards.

“I was borrowing from one credit card to pay another,” Lightfoot said.

He said talking about the filing is embarrassing, but he doesn't want to see other people end up in the same fix.

“My advice is, if someone sends you a credit card in the mail, put it in the shredder,” Lightfoot said. “If you get more than one or two credit cards, you are going to get in trouble.”

Medical expenses also play a role in bankruptcies for Iowans who lack adequate insurance.

For Van Watts, a Cedar Rapids retiree, a lack of Medicare “doughnut hole” insurance added up to big problems after his wife had an illness. The couple also had to borrow for a new wheelchair ramp into their home.

A bankruptcy discharge erases most debts, with a few exceptions, such as the debtor's home. Bankruptcy reform laws have required debtors for the past few years to receive credit counseling to receive the relief, known as a discharge. Although the law's other requirements were expected to limit the number of debtors receiving a full discharge, that has not proven to be a problem.

Filing a bankruptcy can cost $1,000 or more. Filings often peak in spring, when debtors use their federal and state income tax returns to pay their attorneys. Lightfoot, retired from law enforcement, said that even with representing himself, it was hard to scrape up the money to pay bankruptcy court fees.

Lawyer Richard Boresi of Swisher, who specializes in debt law, said 2009 was “an extremely busy year,” but he's not convinced bankruptcy has peaked.

Boresi said he's still seen relatively few laid-off workers file bankruptcy, and the issue of how mortgage companies will deal with the unpaid mortgages on homes destroyed in the 2008 floods is still being sorted out.

Attorney Steve Klesner of Iowa City said the mortgage-servicing industry appears bogged down by the magnitude of repayment issues it faces right now. Many debtors would be able to catch up on their late mortgage payments if the servicers were adept, he said, but they are often losing their homes because the mortgage companies fail to respond in time or can't give them answers when they need them.

By the time someone does respond, Klesner said, the debtor is often months behind in payments and no longer able to catch up.

“I think we're going to continue to see in the next two or three years the fallout of the foreclosure problems, the housing market problems and the unemployment,” Klesner said.

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