DRAPER — If there's one thing bankruptcy attorney Adam Brown sees in his work, it is a wide spectrum of clients.
There's the utterly foolish person who squandered money without thinking. There's the cash-strapped soul who went to a payday lender and got hit with exorbitant interest rates. Occasionally, there's a ne'er-do-well who isn't bothered a bit to just dump debts. And there's the tragic older couple, slogging through a catastrophic illness, who are embarrassed half to death that they cannot pay sky-high medical bills.
Federal figures show bankruptcy filings nationwide are the highest they have been since 2005, which is when the bankruptcy process was substantially revised through the Bankruptcy Abuse Prevention and Consumer Protection Act.
There were more than 2 million filings nationwide in 2005, a record that some analysts attribute to people hurrying to get into court before the tougher regulations went into effect.
The Administrative Office of the U.S. Courts announced this week that, as of June 30, 2010, there were 1.57 million bankruptcies filed throughout the country this year, which represents a 20 percent jump from the previous 12-month period.
Of those filings, most were Chapter 7, or personal bankruptcies. There are four types of bankruptcy, but Chapter 7 is the one most frequently used.
The rise in personal bankruptcies may be tied at least in part to the continuing national economic slowdown.
"You see a lot of bankruptcy with the unemployed," Brown said. "It's often people who were in the construction industry or real estate and lots of businesses related to those industries, such as subcontractors doing painting or cement work."
And the problem extends to Utah, where there were 21,784 total bankruptcy filings in 2005. The state numbers dropped substantially in 2006, to 5,031, but began a steady rise each year since then as the economy soured.
So far this year, there have been a total of 10,345 bankruptcy filings in Utah, according to the U.S. Bankruptcy Court for the District of Utah.
In addition to personal problems, the demise of a small business also can result in people ending up in bankruptcy court, because they often are personally liable for business debts.
"Truthfully, I don't think some of these people understood what they were doing when they started it and signed those documents," Brown said, noting that it's always a good idea to get some basic legal advice before beginning a small business, even if it's relatively simple and a sole proprietorship.
A bad divorce, with either too-few assets or a partner who misused money, also can spur bankruptcy, and people are rudely reminded that marriage is a legal contract.
"I also see a lot of title loans and payday loans," Brown said. "I would never recommend going to those places."
With a title loan, the collateral becomes the car, and the interest rates can be so high that people cannot pay. Often, they lose their vehicles.
Brown said most clients are well-intentioned people who either made mistakes or had some significant misfortune befall them. He has encountered a few hustlers who try to misuse the system by attempting to do such things as quickly transfer assets to others to hold temporarily before filing for bankruptcy.
Brown wants nothing to do with any sort of deception and will warn a client, "If I know you have that secret asset, I have an ethical obligation to disclose that."
It is possible that a rogue client could lie to him, but Brown believes that actual abuses of the bankruptcy court are "very rare."
"The bankruptcy code itself does a pretty good job of weeding out abuses," he said. "I had one client who was filing for bankruptcy who went on a lavish vacation and thought it would be discharged. It wasn't discharged."
Nowadays, everyone who files for Chapter 7 bankruptcy must attend a debt counseling class, which can be online or done over the phone, and also must take part in a post-filing financial management course.
"I don't think it will eliminate bankruptcies," Brown said, but he thinks it probably is a good idea to teach people some money management techniques to try to guard against the possibility of repeat filers.
And there still is a stigma attached to bankruptcy, Brown said, even though so many people are going through it. "A lot of people feel terrible."