New York Times October 2, 2005 MY HOUSE, MY PIGGY BANK 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 bankruptcy. "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 hard." 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 Connecticut. 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 difficult. 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 liquidation. "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 own. 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 trouble." 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