Bankruptcy rates in Utah can be deceiving

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SALT LAKE CITY -- Thousands of Utahns are finding themselves, for the first time, in Bankruptcy Court. New numbers released by the U.S. Bankruptcy Court show a 62 percent increase in bankruptcy filings for the first nine months of the year when compared to the same time last year.

The numbers are no surprise to Will VanderToolen of the AAA Fair Credit Foundation, a local credit and debt counseling service. He says many of his clients are people who, until relatively recently, have been financially stable.

"And with their high incomes and high access to credit, they've been able to live for many months using their credit cards," he said.

VanderToolen also believes that because of the high number of entrepreneurs in Utah, the unemployment numbers don't tell the whole economic story.

More than 10,000 bankruptcy filings have been logged so far this year. VanderToolen believes some people now see it as one of the only ways to keep their homes.

"I think now more than ever there is a higher percentage of individuals who do not have any other options," he said.

In spite of lost jobs or reduced income, VanderToolen says many of those affected have not changed their lifestyles. In fact, he says, some clients contacted them during the government's recent "Cash for Clunkers" program. "And people are asking, ‘Well why shouldn't I go buy this new car if I get this great rebate?'" he said.

Some people point fingers at Utah's large families or big homes or charitable giving as causing more bankruptcies here than in other states.

BYU economics associate professor Lars Lefgren says comparing state to state is quite unfair, though, because there are different laws in each state. That means the same financial difficulties are managed in different ways.

"In one case, the debtors simply ignore creditors because their wages can't be garnished. In the other state, debtors' wages are garnished and they have to enter bankruptcy court. So here we have two states with the same situation, but we see high bankruptcy rates in one situation and low rates in another," he said.

Lefgren says it's easier to garnish wages in Utah. Many residents also have to file under chapter 13, which, instead of liquidating assets and clearing debt, sets up a payment schedule. But Lefgren says in two-thirds of the cases, people fall behind on their payments and file for bankruptcy again.

"In many cases one chapter 13 bankruptcy can turn into two or three filings," he said.

Lefgren says that beefs up the bankruptcy rate, even though the underlying financial difficulties may be just the same as another state.

Some financial planners say with the rough economy, even people with jobs are facing challenges. Low wages, with bills staying the same, causes some people to jump straight to bankruptcy. But Thom K. Hall, a certified financial planner, says they should consider other options first.

"Make sure that you understand what the short-term benefits are now but also what the consequences will be and make sure that that weighs out in the balance."

"Explore any other options that you can," he advised. "Many creditors are now willing to make concessions or to look at other options rather than writing off the debt."

Hall agrees the major factor could be people in Utah spending beyond their means. Continued fallout from adjustable rate mortgages is also a factor as people are unable to cope with the sudden rise in payments.

Compiled with information form Mary Richards and Marc Giauque and Richard Piatt.

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