Lake and Porter County bankruptcies increasing in 200

Once again, it seems the region isn't ready for reform.

Bankruptcy filings in Lake and Porter counties followed national trends as they rose steadily over the last 10 years, then plummeted after the Bankruptcy Abuse Protection and Consumer Protection Act passed Congress in 2005.

Bankruptcy filings dropped to a 10-year low in 2006, the first full year following changes that tightened the requirements for consumer bankruptcy. But filings are on pace for a 20 percent increase in 2007, and many are predicting the figures will continue to creep up, if not explode.

"I don't think bankruptcy reform did anything," said Gordon Gouveia, a Merrillville attorney and bankruptcy trustee who figures the field will remain a major, long-term part of his practice.

"If anything, the only reason it went down was because so many people rushed in to file before October 2005, when the law changed."

Filings at the Hammond courthouse, which serves Lake, Porter, Jasper and Newton counties, shot up 46 percent in 2005, to more than 9,000, as panicked debtors rushed to file bankruptcy before the reforms took effect.

Filings last year plunged to just 2,837, a 70-percent drop and the lowest total in 10 years. If trends for the first half of 2007 continue, that number will rise to more than 3,300-- closer to the 10-year average of 5,300 per year.

Banking industry officials tout the decrease, but also don't expect the record lows of 2006 to set the trend.

"It still hasn't been there long enough to know," said Joe DeHaven, president of the Indiana Bankers Association. "How far will it creep up? Where will it level off? Ultimately, I think it will have an effect, and I think there will be fewer bankruptcy filings."

Analysts expect that bankruptcy filings could increase as adjustable-rate mortgage payments increase for many borrowers, a trend that is hurting the banking industry nationwide, and could hit especially hard in Indiana, the state with the highest foreclosure rate in the country.

As bankruptcy filings appear poised for a rebound, what has changed?

Few turned away

Belinda Kovacik of Whiting faced debts of $142,000 when she filed for bankruptcy in August, the end of a years-long financial slide that began when the taxes and mortgage increased on a rental property she bought in Whiting. With annual income of around $25,000, a combination of child support and wages from an $8-an-hour job, she passed the means test required to qualify for Chapter 7 with flying colors.

She also passed a financial knowledge test she completed as part of the credit counseling sessions required for bankruptcy filers since 2005 -- Kovacik met with a counselor for a few hours and was advised on how to set up a budget and trim expenses.

"I already was doing all those things," said an exasperated Kovacik as she left court last month, soon to be rid of her debts and her rental home.

"There was nothing I could do but get a better-paying job, and there aren't a lot of those out there," she said.

The means test was the centerpiece of bankruptcy reform, intended to weed out would-be filers who had ample income to make payments. Bankruptcy records don't track how many people don't qualify to file, but attorneys estimate they turn away fewer than 10 percent of their clients.

Credit counseling session typically take less than three hours, a process that can be completed on-line or over the phone. Consumer Credit Counseling Service of Northwest Indiana, located in Gary, is the sole location in Lake and Porter counties where debtors can go for an in-person meeting with a counselor.

Counseling sessions have increased 300 percent since 2005, said counselor Linda Shedrow. But Shedrow said few of the 50 or so people she sees each month wound up in debt because they didn't know how to handle their money.

"Most of the people who come in have medical bills or lost a job or had a divorce," Shedrow said.

"Most of the time, we look at what they owe and what they make, and we ask them how they made it this long."

More debtors are paying off at least some of what they owe, however, as more filers are channeled into filing under Chapter 13, in which they set up a payment plan with creditors.

'Hanging in there'

Before 2005, Chapter 7 filings out numbered Chapter 13s by a 2-1 ratio. Since 2005, Chapter 13s have made up slightly more than half of all filings.

There are not accurate ways to measure how many debtors fail to make the required payments and have their cases converted to a Chapter 7 or dismissed entirely.

Chapter 13 Trustee Paul Chael said he suspects more filers are opting for Chapter 13, and are fighting to keep up with their payments, because Indiana's soaring home foreclosure rates are driving bankruptcy filers in the first place.

"People do not want to lose their homes, which is what happens when you file a 7," Chael said. "More people seem to be hanging in there and trying to make payments, and I think that's a good thing."

Another factor: fewer lawyers will be taking bankruptcy cases, as new laws have created more work for attorneys and set maximum fees.

With fewer filings to go around, at least in the short-term, only firms that specialize in bankruptcy will be willing to take on the expense of buying and learning to use computer software to administer the means test, much less take on the workload of handling more labor-intensive Chapter 13 filings.

"A lot of people got out of the business because they had to get out of the business," said Ed Hopper, who was the state's head trustee during the 1990s.

"The original seminars they gave on the new law, the requirements and the software were incomprehensible. A lot of people just got out of it. If you're just doing five or 10 a year as part of your practice, it wasn't worth the hassle."

Reform also increased the filing fees, and few lawyers are going to cut their own fees given that there is less competition and more work required for individual filings.

"They made a few more hoops to jump through," Hopper said. "That's what they wanted to do, but the people that are going to file are still going to file.

"I was mad about (reform) when it passed, but now I see it as a non-happening."