Bankruptcy filings by Vermonters are on the rise — and the curve is steeper than in the rest of the country. Statistics provided by the U.S. Bankruptcy Court’s Vermont district show that the number of cases in the state doubled over the past three years — from 623 to 1254, a 101 percent increase — while the national increase during the same period measured 81 percent.
“There’s no typical case,” says Middlebury bankruptcy attorney Kathleen Walls. “Every story is different.”
That said, the main catalysts for individual bankruptcy filings — divorce, medical expenses, job loss — are the same now as in the past, says Bethel attorney Ray Obuchowski, one of the state’s leading bankruptcy practitioners. “It’s just that the condition of the economy is pushing more and more people over the edge,” he notes.
One new trend involves the growing number of upper-middle-class Vermonters seeking protection from creditors. “I’ve been seeing a lot more people who you could say had reached the American Dream but have seen it turn into a nightmare,” Obuchowski comments. Most of his clients in this category file for bankruptcy because they cannot meet mortgage payments on homes they bought for $1 million or more in towns such as Stowe and Manchester. “When the mortgage gets to be 40 or 50 percent of household expenses, it becomes impossible for some to keep going,” Obuchowski says.
Elderly Vermonters also account for a rising proportion of clients, both Walls and Obuchowski report, as does Michelle Kainen, chair of the Vermont Bar Association’s bankruptcy section. Financial disaster for some Vermonters in their sixties and seventies arrives in the form of depleted 401(k)s, Kainen notes. Others get gored by the irresponsibility of their relatives. “There’s nothing more sad,” Kainen observes, “than filing for an elderly person who had cosigned on a vehicle loan for a grandson or granddaughter who can’t make payments.”
Dairy farmers are going under as well, Walls notes, as milk prices drop below the cost of maintaining a herd. “It’s definitely an issue that’s getting worse,” says Walls, who represents many clients in cow-rich Addison County.
Unpayable credit-card debt also drags down many Vermonters, the lawyers say. “I’m seeing a lot of people who use credit cards to pay for basic living expenses like groceries and medications,” Kainen remarks. “They might have been able to handle it when interest rates were 17 or 18 percent, but not when they’re 30 or higher,” says the White River Junction-based attorney who handles cases up and down the Connecticut River Valley and into the Northeast Kingdom.
Frivolous purchases of luxury items are usually not significant factors in Vermont bankruptcies, Kainen says. But she has seen some possessive Harley Davidson owners. “They might as well stab me with a letter opener before they’d agree to give up their Harley,” she says. “They see it as essential in the way the rest of us see food and oxygen.”
“About half my clients had been doing OK before the recession hit and, had their status quo been maintained, they’d probably have continued to be fine,” Kainen adds.
Some of those filing don’t actually need to obtain the legal protection from creditors that the court can provide, Obuchowski points out. “There’s nothing to be gotten from these people. They seek [bankruptcy status] for relief from the mental stress brought on by collection efforts,” Obuchowski says.
And hardly anyone finds bankruptcy proceedings to be a pleasant experience, Kainen adds. “This is actually the last place they’d imagined finding themselves. It’s still seen as very shameful, although there’s some understanding that it’s been brought on by circumstances outside their control.”
It costs $299 to file under Chapter 7, the most common form of recourse, says Tom Hart, clerk of the U.S. Bankruptcy Court in Vermont. Most filers must also come up with $1000 or so for attorney fees, Kainen notes, although she and many Vermont bankruptcy lawyers offer reduced rates to those with almost no means.
Prior to appearing before Judge Colleen Brown — Vermont’s only bankruptcy judge, who divides her time between Burlington and Rutland — a filer must take part in a meeting with unsecured creditors who will try to identify any available assets. Next, Brown presides over a hearing and issues a ruling, which can be appealed through the federal court system.
There’s no sign of a slowdown in the upsurge of bankrupt Vermonters. A total of 438 have sought relief in the court so far this year, compared with 356 who had filed as of mid-April last year.
The increase in the state and in the country as a whole is occurring despite an overhaul of the federal bankruptcy law in 2005 that was intended to make it more difficult for individuals to obtain protection from creditors. That change in the law was “the product of anecdotal evidence suggesting that there must be fraud involved” in a significant proportion of filings, Kainen says. “There wasn’t — and there isn’t.”