In Too Deep Personal Bankruptcies Increasing Nationally
First of two parts
The credit cards arrived in late November.
For the first time in Cheryl and Alton Koon Jr.’s marriage, it was Christmas: new clothes for their five children, a new TV.
With a new Visa, credit lines swung open at Sears, Eagle, Mervyn’s, The Bon and JC Penney. Within months, they qualified for a van. Within months, they maxed out their cards.
For the next four years, it was payback time.
Half their $2,200 combined monthly income went to pay the credit card balance and for the van. They cut the cards up, juggled payments and shopped carefully enough to feed seven people on $60 a week. But the bills kept coming.
After four years of making payments, the couple, who work in retail and construction, were as deeply in debt as they’d been at the beginning. The hole, a consumer credit counselor advised, was too deep.
In October 1996, they filed for personal bankruptcy with debts of $39,904, joining 1.1 million people who filed last year.
“I didn’t want to do it. I fought bankruptcy for a year but we just had no money,” said Cheryl Koon. “We got our paychecks and they were gone.”
Like a majority of filers, they’d experienced a drop in income - from missed child support due to a layoff - before filing. Like more than one third of bankruptcy petitioners surveyed by Visa USA, the “last straw” was aggressive tactics by debt collectors, including threats to garnish their wages.
Nationally, the number of personal bankruptcies is rising fast enough to prompt a campaign to change federal law. Credit card issuers have launched massive consumer awareness campaigns with Visa spending $23,000 on such a campaign in the Spokane market.
In an economy considered strong nationwide, the rate of bankruptcy is eight times what it was during the Great Depression, the American Bankruptcy Institute says.
Spokane bankruptcy trustees who handled 250 annual cases five years ago now handle three times that number. “The increase has been astronomical,” said trustee Joseph Esposito.
Experts say that nationally, the bankruptcy story is one of credit too easily granted, a stigma that no longer exists toward debt and the use of bankruptcy as a way to manage money rather than as a last resort.
But bankruptcy also is the story of working families caught in the peculiarities of the Inland Northwest, where jobs pay too little and a single emergency can cost too much, where newcomers find the price of settling here higher than they ever dreamed.
“It always starts out innocently,” said Michael Hayes, education coordinator with Consumer Credit Counseling.
Dangerous moves
Newcomers to the Inland Northwest probably don’t know that poverty rates for Spokane County exceed state, regional and national levels; that wages in every sector but health services lag behind state and national levels; or that the median price of a single family home rose 46 percent between 1991 and 1994.
All Lee Ann Ferris-Foster knew was that she was in love.
Since she was old enough to work, the 48-year-old executive secretary always worked, always paid her bills and always on time.
Then she met someone. He was in Los Angeles and she was in Portland when, four years ago, they compromised on Spokane.
They cashed in his 401K retirement fund and moved north to find work. They never dreamed it would take so long.
Through the winter of 1993, Ferris-Foster and her boyfriend, a mortgage banker, sent out resume after resume. She temped, earning $7.50 an hour, and found permanent work at the Boy Scouts of America only after paying an employment service $1,000.
In the meantime, they lived on credit cards.
As the couple fell behind on payments, he stopped answering the phone to avoid bill collectors. Ferris-Foster answered for both of them. Her first job had been as a credit investigator - she knew the consequences of not communicating with collectors.
“It’s the worst thing you can do,” she said. “But it scared him. You feel like a dirt bag.”
Within a year of their relocation, she was standing at Consumer Credit Counseling asking for help. She knew it would take years to regain control of her finances, but she was determined to avoid bankruptcy.
“I’m not a flake about money,” she said. “If you borrow money, you pay it back.”
For the next three years, she paid Consumer Credit Counseling $181 a month. The agency, a nonprofit organization that helps consumers manage money, paid her creditors, several of whom waived interest and penalties.
“They were the ones that saved me,” Ferris-Foster said.
Ferris-Foster said she wouldn’t move to the Inland Northwest again without a job and credit counselors say no one should.
People come looking for a certain way of life in an area with natural resources and beauty, said Reno D’Water, branch manager for Consumer Credit Counseling in Coeur d’Alene.
“Unless they have substantial savings or a job waiting for them, it’s an eye opener,” he said. “I was astounded at how ill-prepared some people were to relocate.”
Newcomers are often blindsided by the low wages and seasonal work, the lack of manufacturing jobs and the loss of their natural safety net - their family.
“A family has got to be the best support system you can have and a lot of folks here don’t have any family.” D’Water said.
Relatives who can loan vehicles, baby-sit or help with the job search are a toll call away.
Having money problems tends to greatly strain the relationships you do have. It helped end the relationship that brought Ferris-Foster here.
She’s since met someone else and remarried. She found permanent work in Coeur d’Alene as an administrative assistant. She’s replaced her Nordstrom shopping with thrift store finds and sales. In November, she paid off her last debt.
Recently, credit card offers have been arriving by mail: She could get $500 worth of credit at 19 percent interest by paying $100 down. She passed.
“It’s over,” she said. “You won’t see me jumping back out. I’m afraid if I had a credit card I’d be out there shopping. I broke a whole habit.”
Credit due
Americans are awash in offers of credit.
Between 1994 and 1995, there were 5 billion credit card solicitations - or 32 invitations for every American aged 18 to 64, according to Business Week.
Bankcard companies like Visa USA insist that bank credit card debt is not a major factor in personal bankruptcy. After studying every bankruptcy petition filed in the country since 1989, Visa reports that only 14 percent of the listed debts are bank card debts, 86 percent are something else.
“We’re a very tempting target,” said Visa spokesman David Sandor.
Credit cards can help keep people solvent through crisis, he said.
But for others, they cause the crisis, say bankruptcy attorneys and financial counselors in Spokane.
The No. 1 cause of financial problems in this area is misuse of credit, followed by job loss, divorce and medical bills, says Hayes of Consumer Credit Counseling.
The nonprofit is expanding offices in Coeur d’Alene, Sandpoint and Colville, a box of Kleenex on each new desk. Clients at the Spokane office are running 20 percent ahead of last year.
One of the first things clients must do is cut up their credit cards.
“Credit card debt is the one area that’s skyrocketing,” said Scott Millsap, president of Automated Accounts, Inc., a collection agency, who also serves on the Consumer Credit Counseling board. “More and more people aren’t afraid to run up those bills.”
The Koons say they were first-time card holders who never anticipated how new lines of credit would sink them.
Attorney Lisa McBride, who handles numerous personal bankruptcies, sees families in Spokane’s lowwage economy who “get enough of a paycheck to almost get by and the credit cards are there to help get them in trouble.”
McBride sees people using the cards for short-term crunches that often snowball. Unable to catch up, they try to consolidate their debts under a single high-interest loan.
“They thought it would help and it just pushes them over the edge,” she said.
Counselors at Spokane Neighborhood Action Program, which helps more than 600 people a year with mortgage counseling and assistance, see the problem among people juggling two to three part-time jobs with no benefits, said Julie Pickerel, community relations.
She knows of working families, who, trying to provide a decent life, take a vacation on a credit card.
“Then the roof starts leaking and they end up with huge credit card debt with high interest and if anything else goes wrong, they’re in real trouble.”
What happens next is the inevitable round of phone calls, letters, repossessions, foreclosures, utility shutoffs and wage garnishments as creditors try to collect.
Collectors can sue for 25 percent of wages - an act that drives many low-income people to declare bankruptcy even when they owe less than $10,000.
Bankruptcy, revised by Congress in 1978, puts an automatic stop to all of it.
Chapter 7, or straight bankruptcy, wipes away credit card debt, medical bills, collection agencies, garnishments, signature loans and other unsecured debt.
Chapter 13, or reorganization, allows debtors to keep a mortgaged house or cars and pay off all or some of the debt over three to five years.
The relief debtors feel from bankruptcy is immediate. But the consequences can be lasting.
Unbelievably, many bankruptcy petitioners get credit card offers right after filing. They often have to ante up half the credit line as collateral ($500 on $1,000 of credit) or pay 25 percent interest rates, but credit is available for some. Home mortgage loans are generally available after two years and car and insurance dealers often offer special assistance for bankrupt buyers.
Nonetheless, according to the Visa surveys, 75.2 percent of those surveyed were not able to re-establish credit after filing. Most taxes, student loans, alimony, child support, fines and damages by drunken driving are not forgiven. Bankruptcy goes on credit reports for 10 years and is a matter of public record.
Conventional wisdom has been that the stigma of bankruptcy has lessened in a consumer-driven society.
But experts like McBride and U.S. Bankruptcy Trustee Jake Miller disagree. Miller says if there weren’t still considerable stigma there’d be 60,000 cases filed in Eastern Washington instead of 6,000.
“What is the measure of success in this country? It is financial, and when you file bankruptcy you’re saying, ‘I’m a failure.”’ he said.
“The dark secret of bankruptcy is that it destroys a little piece of you inside,” said Steve Rhode, executive director of Debt Counselors of America, an online nonprofit counseling service.
“You will always feel in some way you could have done things better.”
Logged out
Since Jerry and Debbie Corey filed for Chapter 13 in December, she’s no longer afraid of confronting a creditor when she picks up the phone or mail.
But she is afraid sometimes at how they look at each other and how friends see them.
The Deer Park couple had been married barely a month when problems with his independent logging company began to overwhelm them.
First a partnership ended, then their loader was hot-wired and driven into a storage container that was burglarized on a site near Airway Heights. The damages, estimated at $35,000, and burglary losses, estimated at $10,000, were not insured.
Six months later, the skidder was broken into at the same location. Wires were torn, ether poured in the gas tank. Two pickup trucks were buried to the axles in mud nearby. The drivers were never charged. Insurance covered only a fraction of the $25,000 damage.
Without the equipment Jerry Corey didn’t work for nearly three months and lost numerous logging contracts.
As the couple struggled to pay the repairs, they used credit cards to buy fuel, make house payments, keep afloat.
She worked three jobs, as a licensed practical nurse at a hospital and at two home-care nursing companies. He used his pickup to skid logs. They hocked her cocktail ring.
What money they had went to cover insurance to continue working.
Finally in December, they filed for Chapter 13, agreeing to a plan to pay nearly $160,000 to various companies. They never considered filing Chapter 7. They want to pay their debt and save their business, J.P. Family Logging. But they have trouble facing people they owe.
“We’ve lost a lot of friends,” Debbie Corey said. “People lose respect in you. No one wants to deal with you, you feel like an outcast.”
When they married, Debbie Corey dreamed of quitting work to take care of her house and husband. Now, every cent goes to repay their debt. Jerry Corey recently finished work in Airway Heights but not before vandals broke the windows in their grader.
“You get through it one day at a time,” she said. “Some days it feels like drowning.”
, DataTimes ILLUSTRATION: 2 Photos (1 color) Graphic: Bankruptcy Boom