This is an archived article that was published on sltrib.com in 2010, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Bankruptcies soared 27 percent in Utah the first nine months of the year, outpacing the U.S. gain in a sign that thousands of families continue in their struggle to throw off the devastating effects of the Great Recession.
So far this year, 13,603 Utahns and dozens of the state's businesses have declared themselves insolvent in a bid to gain relief from what for many was overwhelming debt and too little income.
Amid the increase, those familiar with the problems Utahns are facing say the main reasons for filing bankruptcy remain unchanged and that the difference between falling into a financial abyss and remaining upright is very thin.
"We are seeing people who desperately want to pay their debt but have found themselves in financial trouble," said Brent Hatch, of the Family Financial Education Foundation, a counseling service that advises consumers in Utah and other states and is based in Evanston, Wyo. "Some are struggling to keep their homes, but with home values down, they are unable to refinance.
"Others have credit card debt, some don't. And about half those that we are seeing have medical debts that they are unable to pay."
For David Sime, clerk of the U.S. Bankruptcy Court for Utah, the latest state numbers "represent a continuation of the upward trend in bankruptcy numbers that we've been seeing" for the past several years. And their pace topped U.S. filings, which totaled nearly 1.17 million during the first nine months of 2010, an 11 percent increase over the same period in 2009, according to the American Bankruptcy Institute, a Virginia-based organization that studies matters related to insolvency.
Bankruptcy is typically viewed as a "lagging" economic indicator because filings reflect what happened to personal finances one to two years ago.
And that can help explain why Utah's bankruptcy rate for the first nine months of this year rose at a faster clip than the national numbers, said Jeff Thredgold, economic consultant to Zions Bank.
"Utah was a little late in entering the national recession, so you would expect that we would be seeing higher levels [of bankruptcy filings] a little later than the rest of the country," he said.
Still, all indications are that Utah's numbers will continue to rise.
Utah bankruptcies, along with those of the other states, have steadily increased since filings plunged in late 2005 after Congress changed the country's bankruptcy laws. Those changes were designed to make it harder for people to completely walk away from their debts by requiring some who have the means to repay at least part of their obligations.
Congress passed the tougher new law after heavy lobbying by credit card issuers, who portrayed many of the nation's financially troubled consumers as profligate spenders who went into debt believing they eventually could declare bankruptcy and completely erase their debts.
The new law also requires those seeking bankruptcy to receive credit counseling before they file and to take a personal financial-management class before their cases can be dismissed.
Sam Gerdano, executive director of the American Bankruptcy Institute, pointed out in a statement announcing the increased filings nationally that filings for the first three quarters of 2010 represented the highest total since 2005.
"While the 2005 bankruptcy-overhaul law aimed to reduce filings, overall consumer debt and continued financial stress have led to consumer bankruptcies climbing back," Gerdano said.
Of those who filed bankruptcy petitions in Utah during the first nine months of 2010, 67 percent sought relief from their debts under Chapter 7, which involves a trustee liquidating a debtor's assets and distributing the proceeds to creditors. Any remaining debts then are wiped out, and the debtor gets a fresh start.
The remaining 33 percent sought Chapter 13 bankruptcy, which allows financially troubled consumers to formulate a plan to repay all, or at least part, of what they owe over a period of time, typically three to five years.
For help
The U.S. Bankruptcy Court for Utah offers a list of credit counseling services on its website at http://www.utb.uscourts.gov.