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Bankruptcy filings jump

Bankruptcy filings in Wisconsin were up almost 50 percent in the first half of the year, fueled in part by homeowners unable to cover monthly payments when their adjustable-rate mortgages repriced upward.

Bankruptcy filings in Wisconsin were up almost 50 percent in the first half of the year, fueled in part by homeowners unable to cover monthly payments when their adjustable-rate mortgages repriced upward.

Through June, 7,667 bankruptcy petitions were filed statewide, compared with 5,124 in the first six months of 2006, according to court records.

Though the increase is big on a percentage basis, it is not surprising because 2006 had the fewest bankruptcies in 12 years in the state, lawyers said. Last year's filings were way down because a record number of indebted consumers hurried to court to beat implementation of a tougher bankruptcy law in late 2005.

Even though the law has changed, the typical factors that lead to bankruptcy -- divorce, job loss and medical crisis -- remain the same, lawyers said. But there is no doubt that people who were sold mortgages they ultimately couldn't afford also are adding to the totals right now, they said. The jump in monthly mortgage payments, combined with other debts, is more than some consumers can handle.

"People didn't realize what they got into until too late," said Paul Swanson, a bankruptcy lawyer in Oshkosh. "Their payment's going from $759 to $1,200, and they just give up."

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Milwaukee bankruptcy lawyer James Miller said increases in adjustable-rate mortgages "are tying people in knots."

"I'm seeing more foreclosures now than in the 14 years I've been doing this," Miller said. "When the mortgage payment climbs up, it climbs right out of their budget, and they are not able to make the mortgage payments. That's the big problem."

Milwaukee bankruptcy lawyer Robert Waud said the employment situation doesn't seem to have deteriorated here, but when jobs are lost, they can take longer to replace.

"What I do find is that many of the people I've seen who have lost jobs have a great deal of difficulty finding one in a hurry," Waud said.

The new bankruptcy law requires more documentation to establish whether someone truly is in need of the fresh start provided by a Chapter 7 personal bankruptcy, which wipes out debts like credit card charges and medical bills. The new law also requires that people considering bankruptcy undergo means testing to find out if they actually could pay back at least part of their financial obligations over time.

The changes in the law were pushed by credit companies and the banking industry, which contended that bankruptcy had become too easy and that people were abusing the system.

"There is a lot of scrutiny that goes on now that I think the people who created the law are probably happy with," Waud said.

The additional documentation results in more time spent by attorneys, however, which translates into higher expenses for consumers who plan to file for bankruptcy.

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"That's why the cost of an average bankruptcy has gone from probably $750 to probably $1,300," Miller said.

Swanson said bankruptcy cases in his area of the state that used to be $800 now cost about $1,200.

"It takes longer to prepare a case from a debtor attorney's standpoint. A lot more due diligence goes into it. So I suppose the quality of the filing has actually gone up," Swanson said. "But time means money. So poor debtors, who can least afford it, are paying probably 50 percent more."

Miller said the means test that is meant to sort out who can afford to pay back some debt and who can't probably has pushed 5 percent or 6 percent of his clients from Chapter 7 bankruptcy into Chapter 13, which requires partial repayment.

Nationally, official bankruptcy filing figures for the first sixth months haven't been tallied, but the American Bankruptcy Institute said filings in June were up 37 percent from the same month in 2006.

-- Copyright © 2007, Milwaukee Journal Sentinel/Distributed by McClatchy-

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