Bankruptcies continue to rise
Parish attorney says he files 12 cases a month
For the last four years, the number of bankruptcy filings in the Eastern District of Louisiana has been on a steady incline. In 2006, there were only 1,767 filings. In 2009, that number jumped to 4,234.
Through October 2010, there has already been 4,063 filings.
The increase comes despite a new bankruptcy law in 2005 that actually makes it harder to file. Before 2005, most filers could choose the type of bankruptcy that seemed best for them. This would either be Chapter 7, which is liquidation, or Chapter 13, which is repayment.
With the new law, a person’s monthly income is measured against the monthly income of a similar household in their state. If their income is less than or equal to the median, they can file for Chapter 7. If not, they must pass a means test, which determines whether or not that person has enough disposable income to make payments on a Chapter 13 plan.
“Right after they changed the law, I was filing one bankruptcy a year,” Attorney David Moyer, who handles bankruptcies in both St. Charles Parish and New Orleans, said. “Now, I’m filing around 12 bankruptcies a month in St. Charles Parish.”
Moyer says that though bankruptcies are increasing across the nation, Louisiana is more at risk because of huge increase in insurance rates that Hurricane Katrina forced upon the area.
“The cost of insurance has doubled or tripled since 2005,” he said. “People were paying $1,000 a month for their homes, but now they’re paying $1,600, $1,700 or more.”
Because insurance is more expensive, Moyer said that a lot of people start using their credit cards more to make up the difference.
“But if they miss a payment, their interest rate can jump from 7.9 percent to upwards of 29 percent,” he said.
Because of the state of the economy, Moyer said that a lot of residents are also living paycheck-to-paycheck, which can be hazardous if they happen to get laid off or have a hospitalization.
“That’s just bad luck,” he said. “How are you supposed to prepare for bad luck?”
Though close to 80 percent of the cases Moyer files are linked to high insurance, he said that re-financing a home can also lead to drastic consequences.
“Re-financing a home is a good way to avoid bankruptcy, but it can also lead to bankruptcy because a lot of banks are telling people not to pay their mortgages while they go through the process,” Moyer said. “If people fall behind in their payments and they don’t get approved for re-financing, mortgage companies could force them to pay a ridiculous amount - like $19,000 - to avoid a foreclosure.
“I have filed several of those, but people need to keep making their mortgage payments no matter what they’re told.”
And Moyer doesn’t believe the recent rise in bankruptcies will slow down anytime soon.
“In fact, I think bankruptcies will continue to keep going up for the next two or three years,” he said.
Some other steps that can be taken to avoid bankruptcy are:
- Talk to your bank and find out if you can consolidate all your debts into one payment. That can make your monthly bills more manageable.
- Make a list of your debts and write down the phone number of each of your creditors. You may be able to avoid filing bankruptcy if you are able to make payment arrangements with each of your creditors.
- Be honest with your creditors about your situation because a debt repayment plan will only work if you are realistic about what you can afford to pay each month.
- Cut back on extras like eating out, entertainment and shopping.
- Cut up your credit cards. They contribute to bankruptcy because they allow you to spend frivolously.
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