DENVER (CBS4)- Personal bankruptcy filings are down in Colorado for the first half of 2011, compared with this time last year. But in the last couple of years, personal bankruptcy filings have hit record highs.

There were 10,000 more last year than 10 years ago, in part because it’s getting easier to recover from a bankruptcy.

Most people report they’re filing for bankruptcy because of unforeseen medical expenses. Other factors that drive bankruptcy filings are excessive credit card debt, unemployment, and divorce.

In an economic downturn fueled by debt default and high unemployment, it’s not surprising that bankruptcies are hitting an all-time high. But filing for bankruptcy today is not like filing for bankruptcy 15 years go.

Catherine Sandy knows that all too well. She runs a beauty salon out of the first floor of her historic Denver home.

“I bought it in 1986 with a thousand dollars down,” Sandy told CBS4.

In 1996, Sandy was diagnosed with cancer.

“I think that’s the double edge sword of being self-employed, if you don’t work you don’t make any money.”

Sandy got behind on her mortgage and faced mounting medical expenses. In 1997, she filed for Chapter 7 bankruptcy.

“I exercised my constitutional right to save my home and my business because it was all I had,” Sandy said.

She recovered physically from the cancer, but it’s taken her 15 years to recover financially. Sandy got caught in a web of predatory lenders and high interest rate loans, adding about $63,000 dollars to her debt load.

“You were the dredges of society if you filed bankruptcy,” Sandy said.

“Declaring bankruptcy was a big letter ‘B’ on your credit report,” said Mac Clouse, professor of finance at the University of Denver Daniels College of Business.

It used to be a bankruptcy would eliminate you from the credit world for seven to ten years until the bankruptcy filing came off your credit record. Now so many people are filing for bankruptcy that lenders are loosening their requirements.

“There are a lot of lenders that will still give people credit cards…will still make loans to people who have a bankruptcy in their credit history,” Clouse explained.

Clouse says the problem is that in some cases the banks are granting credit to the people who have already shown problems from a financial management stand point putting them right back in a risky situation.

“A lot of it is the competition among the lenders,” Clouse said.

In 2005, Congress passed a bill that tightened some of the loop holes on bankruptcy making it harder to file. But Clouse said it’s still an much easier option that it was when there were more negative connotations associated with it.

— Written for the Web by CBS4 Special Projects Producer Libby Smith


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