WSJ: Wave of Bankruptcies Hits States Hammered by Housing Bust



The Wall Street Journal
January 7, 2010

Wave of Bankruptcies Hits States Hammered by Housing Bust
By Sara Murray

Personal bankruptcies soared last year in Western states hit hardest
by the real-estate bust.

In states such as California, Arizona and Nevada, where housing prices
soared and then collapsed during the past decade, consumer bankruptcy
filings rose roughly twice as much as the national average increase of
32%. Homeowners fell behind on mortgages and could no longer tap into
their home equity to pay down other debts.

"There's a close relationship between high levels of household debt,
including mortgage debt, and bankruptcy filings," said Samuel J.
Gerdano, executive director of the American Bankruptcy Institute, a
research organization made up of attorneys, accountants and other
bankruptcy professionals. "That...has been exacerbated by the bursting
of the housing bubble."

In Arizona and Nevada, where bankruptcies increased most, filings
skyrocketed by 79.6% and 59.5%, respectively. Nearly 6.2% of mortgages
in Arizona and 9.4% of mortgages in Nevada were in foreclosure by the
end of the third quarter of 2009, according to the Mortgage Bankers

California saw personal bankruptcy filings rise 58.8% last year. At
the end of the third quarter, some 5.8% of loans were in foreclosure

Not everyone who goes through foreclosure ends up in bankruptcy and
not every bankruptcy is driven by foreclosure. Some states with
relatively few foreclosures, such as Utah and Wyoming, had larger
increases in personal bankruptcies than Florida, the scene of lots of

Mortgage troubles and job losses were primary contributors to the rise
in personal bankruptcies last year, with the impact of both often felt
in the same household. Makoto Shuttleworth, a California bankruptcy
lawyer, said his clients four years ago were almost exclusively
renters. Homeowners in financial trouble could almost always take care
of their debts by selling their home or turn its equity into cash via
refinancing, he said.

As real-estate prices collapsed, Mr. Shuttleworth saw more homeowners
come through his doors, most with steady incomes. Today, with the
unemployment rate at 10%, he is seeing more clients whose debts have
piled up after losing their jobs.

--Conor Dougherty contributed to this article.


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