88% More Bankruptcy Filings Than In 2006

It's another sign of our depressed economy: 141 individuals, couples and businesses in Highlands County filed for bankruptcy in 2008, up 40 percent from 2007.

Around the nation, the news is almost as bad: 1.07 million people filed for bankruptcy last year, up 31 percent from 2007. Business bankruptcy filings rose to 43,546 cases last year, up 54 percent.

"It's going to get a whole lot worse before it gets better," predicted Gary Gossett Jr., a bankruptcy attorney who has an office in Sebring.

Just how bad is the economy?

"This is the first time I've seen people so broke they can't even afford to hire an attorney to file Chapter 7 bankruptcy," said Gossett, who has been practicing law for 19 years.

The court fees to file Chapter 7 are about $300. Gossett estimated that the filing fees, the cost of mandated bankruptcy computer classes, and his fee totaled $2,150.

Bankruptcy Law Changes

In 2005, 335 bankruptcy cases were filed, but they declined to 75 in 2006.

"The credit card companies were very effective," Gossett said. Creditors let it be known that the Bankruptcy Reform Act had changed the requirements for debtors filing bankruptcy after Oct. 17, 2005.

Actually, said Gossett, there were only a few changes in the law.

"Many people are still under the incorrect belief that they can't file for bankruptcy protection," Gossett said. "Bankruptcy is in the Constitution itself." (Section 8, Clause 4)

When the economy went south, Gossett said, "Out of desperation, people had to look around and find out alternatives. When they did make the investigation, they found out they can still file bankruptcy. There's only a couple of more steps to it ... You have to take a means test, and there are two online courses you have to take."

Mortgage Help

The House passed legislation last week to give debt-strapped homeowners a chance to win lower mortgage payments through bankruptcy courts. It faces a tough road in the Senate, where Republicans and some Democrats oppose the idea.

The bill gives bankruptcy judges new power to reduce the interest rate and principal on a home mortgage. It's part of President Obama's housing rescue plan.

Supporters see it as a crucial tool to prod banks to negotiate with homeowners for more affordable terms. Critics say it will create a flood of bankruptcy filings that will drive up mortgage rates and further destabilize the battered housing market.

What Is Bankruptcy?

Chapter 7 The debtor turns over non-exempt property to a trustee, who sells it and distributes cash to creditors. The debtor discharges all debts within months. In most cases, however, the debtor loses no assets, but gets a fresh start.

Chapter 13 The debtor pays living expenses, and the remainder of his salary pays debts for three to five years. The debtor can keep non-exempt property, like musical instruments, collections, family heirlooms, and a second vehicle. (Exempt property includes motor vehicles, pensions, necessary clothing and household goods. Some income and jewelry are exempt.)

Sources: FindLaw.com, BankruptcyAction.com