New York Times
October 2, 2005

By Ford Fessenden

Edward Briggs had a good job, but better still, he had credit cards.
The job provided the solid middle-class life -- a home in Colchester,
Conn., two cars in the driveway, food on the table. But the credit
cards underwrote dreams.

"In addition to the normal credit-card usage, I used the balance-
transfer option to pay for a couple of things here and there, and got
carried away with it," said Mr. Briggs, 56.

When the payments started to squeeze him, he realized his predicament
and tried to dig himself out. But he still owed about $70,000, he
said, when he lost his job three years ago. He found some work
consulting, but "I just didn't have enough money coming in to cover
everything," he said.

In July, with his credit-card debts approaching $90,000, he declared

"We all think everything is going to be fine, and we'll have a little
money and can live comfortably, and it didn't work out that way," said
his wife, Karen Briggs, 48.

The couple are now also enduring bankruptcy's secondary infection,
divorce. "I feel like I'm going to lose everything," she said. "I
never thought this could happen to me, not all this. It's just very

While bankruptcy has been on the rise in much of the country, the
suburbs of New York have, for the most part, been spared. Now, though,
there are signs that the holiday is ending.

Elsewhere, bankruptcy has been on a steady upward march since 2000. A
surge of spring and summer filings in anticipation of the new, tougher
bankruptcy law that takes effect on Oct. 17 could easily push filings
in the United States to a record. Hurricane Katrina victims could push
the total even higher. In fact, 1 in every 120 people over 18 will go
bankrupt this year.

In the New York suburbs, though, bankruptcy has been declining, a
trend that has seemed every bit as steady. In the last five years
rates went down 20 percent in the counties around New York City.

But that doesn't mean that all is well in the suburbs. A closer look
at the trend in the New York metropolitan area shows that some
neighborhoods do not share the region's bankruptcy inoculation.
Bankruptcy is high and growing not only in the Bronx, Manhattan and
Brooklyn, but also in many areas of the suburbs, among them Mount
Vernon and Hempstead in New York, Orange in New Jersey and much of

The pattern reflects some of the familiar geography of wealth:
bankruptcy is usually higher in poor areas than in rich ones. But it
also reflects the special geography of insolvency: it's low in places
where the struggling would lose their homes.

A review of bankruptcy trends by The New York Times shows that areas
in New York and New Jersey with the highest concentration of
homeowners have had little or no increase in bankruptcy since 2002. In
areas where there are few homeowners, bankruptcy rates have increased
sharply; in some places they have doubled. The pattern is consistent
with what bankruptcy lawyers and researchers see in their practices
and studies: homeowners in the suburbs are taking on more and more
home-equity debt to stay out of bankruptcy.

"When you're living in a place with home values up 50 percent, you
have what Alan Greenspan calls a piggy bank," said Elizabeth Warren, a
Harvard law professor and an author of "The Fragile Middle Class"
(Yale University Press, 2000), a study of bankruptcy. "The bubble has
operated like wreckage from the Titanic -- you could climb on and float
along for a while. The question is for how long."

Mr. Greenspan, the Federal Reserve chairman, said last Monday that
most homeowners were not yet overextended, but that "froth" had
developed in some local housing markets and in some lending practices.

Time ran out for Mr. Briggs after three years of borrowing on credit
cards and on his home while he looked for a new job. Authorities say
the clock is ticking for thousands of others relying on the paper
profits of their homes to sustain them. If the housing market stops
rising, they say, the bankruptcy lull in the region could quickly end.

Already, a new law that went into effect Aug. 31 in New York State has
pushed bankruptcy filings by homeowners up. The law makes it easier to
shelter a home from bankruptcy and seems to have contributed to a 30
percent jump in filings in the last three weeks in suburban areas
populated largely by homeowners.

"Some people have been spared filing the petitions because they have
home equity," said Andrew Thaler, a bankruptcy trustee on Long Island.
"My guess is when the housing market flattens, people are not going to
be able to sustain the lifestyle they've been maintaining, and you'll
suddenly see a lot more bankruptcies."

Personal histories unfold daily in drab meeting rooms of federal
bankruptcy trustees across the region, where debtors bring their
balance sheets to be scrutinized in a public forum for evidence of
assets that can be stripped by creditors. Most of the people who
appear never had much. For some, there are indications of better days,
usually far behind. A retired office manager from Scarsdale, N.Y., who
appeared last month before a trustee in White Plains had a monthly
disability income of $1,570 and credit-card and medical debts totaling
more than $100,000. She had received a $50,000 lawsuit settlement last
year, but it barely dented her debts, she said.

A young couple from Cortlandt Manor, N.Y., told a woeful tale of lost
jobs, a lost home in Florida, a deeply troubled 12-year-old, and a
kiting operation that kept all their credit-card payments up to date.
"I had to take money from the Optima card to pay the bill on the
MBNA," the wife said. "But I always paid." With $258,685 on more than
60 cards, they finally filed for bankruptcy.

At a meeting last month in Central Islip, a Farmingdale couple in
their 60's brought paperwork showing $25,000 in income, $55,000 in
credit-card debts and no home to borrow against. "Our rent is
skyrocketing, there's no overtime at work, and my husband has been
disabled for 20 years," the wife told the trustee.

At another meeting in Newark, a former college hockey player sought to
discharge debts from an inventory of cards as long as his arm -
$16,000 owed to Chase, $10,000 to Capital One, $16,000 to MBNA
America, $700 to Macy's. He owned no home; he handed that over to his
wife in a divorce in 2002. "I once had a good job," he said, by way of
explaining his predicament.

Declaring bankruptcy stops legal action by creditors, but it requires
debtors to bare their finances at meetings like these. The trustees
work for the Justice Department and act as creditors' representatives.
One trustee may hear 60 cases in a day, a preliminary step before a
federal judge declares the bankruptcy and discharges the debts. The
whole process, from filing to discharge, takes four months, on
average. But obtaining credit after declaring bankruptcy is far more

There are few homeowners at these meetings; for the most part, anyone
who once owned a home has lost it long ago. A woman from Massapequa
Park with nothing but Social Security income and $44,000 in credit-
card debt said she had sold a home in Stamford, Conn., last year. It
was mortgaged beyond its value to pay for a new kitchen, new windows
and credit-card bills, and she and her husband had been forced to
sell, she told the trustee. They are now divorced.

"Leaving the house that you lived in for 30 years is hard, really
hard," she said.

With few exceptions, bankruptcy lawyers in New York and New Jersey say
homeowners have disappeared from their practices.

"I've been doing this for 12 years, and I must have filed 10,000
bankruptcies on Long Island and Queens," said Heath Berger, a
bankruptcy lawyer in Woodbury. In the last four years, he estimates
that one filer in a thousand owned a house.

Mr. and Mrs. Briggs, the Colchester couple, had the good luck to live
in Connecticut, so they will lose their credit, but not their house.
The state allows a couple to protect $150,000 in home value from

"I've never sold a house," said Barbara Katz, the Briggses' trustee,
who worked on bankruptcy cases since 1992. The arithmetic works like
this: Because their $269,000 house has $127,000 in mortgages on it, a
sale would generate $142,000, less than the $150,000 exemption. The
couple would be allowed to keep the entire $142,000, and there would
be nothing to give to creditors, Ms. Katz said.

In sharp contrast, New Jersey allows only a $37,000 exemption; a law
increasing that to $250,000 was conditionally vetoed by Acting Gov.
Richard J. Codey but could be passed with modifications later this
year. Until Aug. 31, New York allowed just a $20,000 exemption for a
couple. (It is now $100,000, but more on that later.) With property
values and home equity rising rapidly, virtually all homeowners had
more than $20,000 in equity, so homes could be sold to pay off credit-
card debt.

One result has been a declining trend in bankruptcies in the areas of
New York and New Jersey where homeowners predominate, but not in
Connecticut. Comparing filings from June, July and August 2005 with
those from the same three months in 2002 showed declines in places
like Northport on Long Island, Hanover, N.J., and Somers, N.Y., all
areas where at least 85 percent of the residents live in homes they

Most of these areas have also seen large increases in home equity. In
Northport, where the average sale price of a house has risen 40
percent in three years, bankruptcy filings dropped to 3 from 6.

The trend went the opposite way in areas with more renters. In Mount
Vernon, N.Y., bankruptcy filings increased 14 percent. In Jersey City,
filings rose to 315 from 244. In Long Beach, one of the few
communities on Long Island with a high proportion of rental housing,
bankruptcies total 43 during the recent three-month period, compared
with 32 in 2002.

Bankruptcy lawyers say that this does not mean that homeowners have
been more prudent than renters. "Two or three years ago, mortgage
companies were giving money to anyone," Mr. Berger said. "They didn't
care whether they could afford it, just that they had a house. Now I'm
seeing all these people who never had the income to pay these loans in

Professor Warren of Harvard believes that disaster lurks as homeowners
borrow against their homes to forestall bankruptcy. When the stock
market tumbled five years ago, people in trouble could sell stocks to
stay afloat, she said. But home equity doesn't work the same way. As
she put it, "You can't sell a part of your home like you could a stock
in the stock market bubble."

Since Aug. 31, when New York increased its exemption to allow couples
to protect $100,000 in home equity, filings were up 30 percent in
those areas in which at least 75 percent of the population lives their
own homes.

Lawyers in New York, New Jersey and Connecticut have also begun to
report a last-minute deluge of debtors from all of these states who
hope to beat the Oct. 17 deadline. That's when the nation's new
bankruptcy law takes effect, and it will force some people with higher
incomes to repay their debts.

"When a family uses its home like a piggy bank and then a job loss, a
divorce or an increase in the adjustable-rate mortgage leaves them
unable to make the payments, the family is out of options," Professor
Warren said. "That's true before and after Oct. 17. Borrowing against
a home leaves a family with the fewest possible options when something
goes wrong."

"After Oct. 17, bankruptcy gets harder for everyone -- more expensive,
more traps, less coverage," she said. "And that means more families
are set up to lose their homes."

Copyright 2005 The New York Times Company