Personal bankruptcy filings in Maine are on the rise.

Aleck Leddy, clerk of court for the U.S. Bankruptcy Court District of Maine in Portland, said filings have gone up as much as 35 percent per year since Congress amended the law in 2005 to make it more difficult for citizens to escape unpaid debt.

“There was a huge spike in 2005. A lot of people filed right before the law changed,” Leddy said. “The perception was that it would be much more difficult, and it is. In 2006 we had very low numbers, but it’s been creeping back up ever since.”

According to the U.S. Bankruptcy Court District of Maine, 413 people filed for Chapter 13 bankruptcy and 6,176 filed for Chapter 7 in 2005, most before the law became more stringent on Oct. 17 of that year. The number of filings dropped in 2006 — 266 filings for Chapter 13 and 1,047 filings for Chapter 7.

But since 2006, the number of people seeking bankruptcy-court protection from creditors has begun creeping back up. In 2010, the court reported a total of 582 Chapter 13 bankruptcy cases and 3,585 Chapter 7 cases.

Under the old rules, filers could chose the type of bankruptcy they wanted. The most common was Chapter 7, which liquidates all debt, over Chapter 13, which requires the repayment of at least some debt. The law passed in 2005 prohibits higher-income filers from using Chapter 7.

In addition, the new law requires all debtors to receive credit counseling before filing, and more counseling on budgeting and debt management before their debt is wiped out.

Peter Fessenden — who handles all Chapter 13 cases in the District of Maine — blames the recession for the rise in personal bankruptcies.

“The economy’s not doing well, and there’s always a lag even when things get better,” Fessenden said. “It’s going to take a long time for people to get over the impact of having had problems. It’s like being sick. You get over the flu, but you’re weak for a long time after.”

A number of municipalities are feeling the effect of the jump in bankruptcies.

Kathy Cutler, tax collector and deputy treasurer for the City of Gardiner, said foreclosures haven’t changed much from last year, but personal bankruptcies have doubled.

“It’s definitely a sign of the times,” she said. “People are struggling.”

The rise in filings “doesn’t mean they don’t pay us,” Cutler said. “If we follow our process and perfected a lien, we get paid first.”

Cutler said city officials are aware of the issue.

“We had a meeting with one of the city’s attorneys to get a better handle on what we need to do, because we’re getting more of those,” Cutler said.

Fessenden said municipalities can expect payments for real estate taxes, sewer and water fees, since these debts are not covered by bankruptcy protection. But regular service charges, such as parking fines, are unlikely to be recovered when someone files for bankruptcy protection, he said.

Still, Maine is in the bottom 10 percent in bankruptcy filings per person; other states have double and triple Maine’s rate of filings, said Fessenden, who compares bankruptcy to major surgery.

Consumers don’t want to decide on filing for bankruptcy lightly or casually because, like major surgery, it will leave a scar and interfere with their ability to do heavy lifting.

“It will be much more difficult to get a mortgage or car loan, and the terms in which you’ll be doing that are going to be much tougher,” he said. “Credit card companies will be happy to give you more credit, but they will charge even higher interest rates.”

 

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