Going legally broke has made a big comeback -- especially in the Los Angeles area -- despite a mid-decade revision to the U.S. Bankruptcy Code intended to curb filings.
The number of Southern Californians seeking bankruptcy protection nearly doubled in 2008 from 2007 in the U.S. Bankruptcy Court's seven-county California Central District, by far the biggest increase in the nation.
Bankruptcy is still booming. Personal filings from January through April, the most recent month available, rose 75% in the Central District compared with the year-earlier period.
Bankruptcy experts attribute the growth mainly to the mortgage meltdown, which hit the region's adventuresome borrowers particularly hard. Add soaring credit card debt and medical expenses, and people who never thought they'd see a bankruptcy courtroom are lining up with petitions in hand.
"California has been one of the biggest climbers in the filing rate in the last few years," said Robert Lawless, a law professor at the University of Illinois and contributor to the Consumer Bankruptcy Project, which examined how the 2005 bankruptcy overhaul affected filers. "I attribute a lot of that to the foreclosure problem."
The scene plays out weekdays in the downtown Los Angeles bankruptcy filing office.
In 2006 and 2007, with bankruptcy filings in the doldrums, official statistics indicate this room was less than bustling. But on a recent morning, nearly 20 people were waiting in the hallway before the doors opened, many looking for a way out of their mortgage troubles.
Kim Smock raced in to ask a clerk: "Do you think I can make an 11:30 sale?"
It was 10:45 a.m. and Smock had only 45 minutes to stop the foreclosure sale of his home.
In short order, Gerri Colwark arrived for a similar reason -- the bank was ready to sell her father's foreclosed home that morning. A bankruptcy filing stops a foreclosure sale, at least temporarily, even if the paperwork is stamped only a minute before the sale is to take place.
"I rushed over here," she said, a bit out of breath.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was designed to keep people who had the ability to pay debts from enjoying the benefits of bankruptcy. At the heart of the changes is a complex "means test" to analyze a person's ability to pay debts before being allowed to seek Chapter 7 bankruptcy protection, which along with Chapter 13 are the types most often used by individuals.
