Housing issues part of bankruptcy climb in ’07

Alex Gary

In 2007, the second full year since the U.S. Congress passed bankruptcy laws designed to make filing for bankruptcy protection more difficult, filings in the Rock River Valley jumped more than 20 percent.

The most common reason local families filed for bankruptcy protection always has been medical bills, said Heidi Berardi, director of education and community outreach at Family Credit Counseling Service in Rockford. But mortgage issues became more prevalent in 2007 than before.

“Medical costs always is the No. 1 reason: Either a person doesn’t have insurance or they suffer a major medical issue and the insurance doesn’t cover everything,” Berardi said. “But housing issues were something much more common. People can file for bankruptcy protection to prevent foreclosures, or they do it to absolve their debt so that they shift more of their money toward their mortgage payments.”

Still, Berardi said the 22.8 percent increase in local bankruptcy filings was a bit misleading. In 2005, believing it was too easy to eliminate poor personal-spending choices, Congress passed a sweeping overhaul of the bankruptcy code which barred those with above-average income from filing for Chapter 7 bankruptcy, where debts can be wiped out entirely.

The law took effect in October 2005 and the courts were inundated with filings in September and October that year.

“So many people rushed to get their filing in that there weren’t that many filings through the first half of 2006,” Berardi said. “But now that we’re through that glut, we’re seeing the economic issues pushing more and more people toward bankruptcy.”

Berardi’s company is a nonprofit firm that counsels consumers with debt problems, negotiating with more than 8,000 creditors to cancel late fees or to negotiate lower interest rates. She said the company expects bankruptcies to rise again in 2008.

“We know 1 million (adjustable-rate mortgages) are getting ready to reset to higher interest rates and, despite the fact some programs have been created to help, there are a number of loopholes that people will fall through,” Berardi said.

Assistant Business Editor Alex Gary may be reached at or at 815-987-1339.