A Perfect Storm: Florida Mortgage Problems, Other Debt Spark Rise in Bankruptcies
Florida mortgage woes, higher gas prices and a “perfect storm” of other financial troubles have caused personal bankruptcies to spike in Central Florida so far this year, according to the Orlando Sentinel.
Nearly 1,300 personal-bankruptcy cases were filed in Orlando in the first three months of 2007, nearly twice as many as during the first quarter of last year.
And that may be just a hint of what is to come.
From bankruptcy trustees and lawyers to clerks and credit counselors, everyone tied to the process is seeing more cash-strapped people coming through the door on their way to insolvency.
“Some people are just drowning in everything, whether it’s debt, job loss, divorce or some health issue,” said George Janas, a credit counselor and managing partner of Orlando-based Consumer Debt Counselors.
“They’ve been living so close to the edge financially - when something big hits, it’s enough to put them behind,” he said. “And they can’t catch up again.”
Personal-bankruptcy cases for the entire Middle District, which extends from Fort Myers to Jacksonville, jumped nearly 80 percent in the first quarter, to 5,308 filings, compared wit a year earlier.
During the five-year housing boom, many of those headed for trouble were able to escape through a Florida refinance, extracting equity that could be used to pay off debt.
But now, with home prices flat or in decline, that option is often not available.
“Prices have tapered off, and there’s no more equity to refinance with,” said Doug Neway, an Orlando consumer-bankruptcy lawyer. “There are many who want to save their homes, but some people are in such bad shape, they really just need to walk away from them.”
Personal-bankruptcy cases still lag the totals recorded in 2004 and 2005, when there was a record run-up in filings ahead of the historic bankruptcy-reform law, which took effect in October 2005.
The revised federal law, among other things, imposed a “means test” to make it tougher for people to discharge their debts in court. It also required filers to get credit counseling as part of the bankruptcy process.
Banks and credit-card companies argued at the time that the new law would counter fraud, catch debt scofflaws and force more people to repay more of their bills. People across the state need to know there are more debt consolidation mortgage options than they think.
“Bankruptcies are down, quality credit counseling is up, and consumers have access to better information about financial management,” Steve Bartlett, CEO of the Financial Services Roundtable, a banking industry trade group based in Washington, said during recent congressional testimony.
Many people are now taking huge hits from ill-advised purchases made during the housing boom, especially those who financed homes with adjustable-rate Florida mortgage loans, which are now creeping up higher to unaffordable levels in some cases, they say.
“There has been a perceptible increase in filings by people who are trying to prevent foreclosure,” said Jonathan Alper, a bankruptcy lawyer in Lake Mary. “I don’t think we’ve begun to see the full effect of that.”
The Central Florida housing market boom also lured some people into buying a home as an investment, sometimes with the aid of creative financing such as “teaser rate” or interest-only mortgages they can no longer afford.
If they qualify to file a Chapter 7 personal bankruptcy, he noted, it leads to the liquidation of their assets, including the second home, but lets them protect their primary residence.
Skyrocketing property insurance premiums and property taxes, along with rising gas prices and that old standard, credit card debt, are also taking their toll.
“There are a lot of things that are just out of people’s control,” said Anne-Marie Bowen, an Orlando lawyer and president of the Central Florida Bankruptcy Law Association. “Most people try to avoid bankruptcy at all costs, but at some point they need to realize they have to do something about their unsecured debt so they can keep a roof over their heads.”
SOURCE: Orlando Sentinel
