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VOL. 123 | NO. 39 | Tuesday, February 26, 2008

'Against the Wall'

Study shows there's more to local bankruptcies than meets the eye

By Andy Meek

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BELOW THE SURFACE: Corky Neale, director of research for the RISE Foundation, unveiled the findings of a bankruptcy research study at a symposium Friday at the University of Memphis. -- Photo By Andy Meek

A ground-breaking study by a local nonprofit group that counsels low-income people has reached some frightening and surprising conclusions about the demographics of and the reasons why people file bankruptcy in Memphis.

The study was spearheaded by the RISE Foundation (Responsibility, Initiative, Solutions and Empowerment), and among its findings is most debtors in the study sample were gainfully employed and said they'd only filed bankruptcy to stop a foreclosure or because of a catastrophic health condition that broke their budgets.

Corky Neale, director of research for the RISE Foundation, presented the results of the study Friday in a half-day symposium at the University of Memphis titled "Picking Up The Pieces: Fair Credit For All." The research project was comprised of hundreds of interviews with local bankruptcy filers.

Neale's presentation was the first look at the results of a comprehensive study unlike anything else before in what once was known as the bankruptcy capital of America.

Heart of the matter

It is generally acknowledged that the problems of bankruptcy and foreclosure in the Memphis area have reached a critical level. The RISE-sponsored research study carries that notion even further.

Based on almost 1,000 interviews with debtors who had recently filed bankruptcy, the numbers tell the story.

Beginning some time in fall 2005, researchers and interns from the RISE Foundation began planning the research project with a simple premise.

The team would approach bankruptcy debtors as they waited to go into a meeting of creditors at the local bankruptcy court. The debtors were given a 21-page survey with 85 questions that covered such topics as demographics and what kind of mortgage products the debtors owned.

What the RISE research team found, in many cases, took them by surprise.

"I think (the study) shows there's a fair amount of desperation. People don't have choices. They're against the wall."

- Corky Neale
Director of research for the RISE Foundation

Bucking the notion that might exist in some circles that bankruptcy filers are either deadbeats or by and large bring their problems on themselves, the RISE study found that 80 percent of respondents were currently employed. More than half said they'd filed for bankruptcy because of
costs related to an unexpected health problem.

The title of Neale's presentation - during which he animatedly addressed an audience of real estate professionals and economic officials - was "Memphis Bankruptcy Filers: What Can We Learn From Them?"

Here's what

Some of what can be learned is the financial scourge of bankruptcy in Memphis has an ominous multiplier effect.
Of the 986 bankruptcy filers who were interviewed, the RISE researchers found that another 1,750 people were affected by the bankruptcy, a number that includes dependants and other family members.

Almost half of the filers who said they were homeowners also said they own a mortgage with an interest rate of between 10 percent and 15 percent. And 62 percent said they had filed bankruptcy simply to stop a foreclosure.

"Some of the other surprises we found are that subprime mortgage credit is more pervasive and expensive than we'd originally thought," Neale said. "And bankruptcy is viewed as the primary way to avoid foreclosure.

"I think (the study) shows there's a fair amount of desperation. People don't have choices. They're against the wall."

Limited options

Debtors in many cases are struggling to solve their own problems. Forty percent of the respondents said they'd tried to negotiate with their creditors. Most said they never imagined they'd be in a position in which filing bankruptcy was their only option short of financial ruin.

More than 20 percent had lost some of their belongings to a pawn shop and had sought debt consolidation loans. A solid quarter of the filers had taken out three or more debt consolidation loans.

Most of the filers who participated in the RISE survey were female, black and between the ages of 30 and 49. More than 20 percent of the bankruptcy filers were approaching retirement.

Desperate times, desperate measures

The study is an indicator that groups such as the RISE Foundation, among others, are keenly aware of the implications of the seemingly unchecked financial woes plaguing Memphis. The secret to alleviating them remains more elusive.

Shelby County Mayor A C Wharton Jr. acknowledged that point recently by saying that the housing- and economic-related problems the county is facing are so dismal he's soliciting ideas from the general public to solve the county's budget woes.

"(In) Hickory Hill, some of the ZIP Codes out there, 55 percent of the mortgages and loans over the past four or five years are subprime," Wharton said in a recent address to the Memphis Rotary Club. "Just because it's subprime doesn't mean it's bad. But there's obviously a much greater likelihood of a foreclosure in those situations."

Wharton's friend and fellow Memphis lawyer Stuart Breakstone was mentioned in a story in the business section of Friday's New York Times because of a mortgage-related problem.

The article was mainly about efforts to create federal legislation that rescues homeowners like Breakstone who are stuck with mortgages worth more than their homes. Breakstone recently paid $65,000 out of his own pocket at the closing of the sale of his home to cover the shortfall between what he owed and what the home sold for.

He had the money to do it, however, unlike the debtors interviewed for the RISE study.

"Again, think about this burden of having an 18 percent interest rate that may be resetting," Neale said. "People told us they'd filed bankruptcy to prevent a foreclosure. They did it to stop the harassing phone calls. They did it, in some cases, just to keep the lights on."

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PROPERTY SALES 119 482 10,051
MORTGAGES 119 497 11,811
BUILDING PERMITS 268 1,056 21,366
BANKRUPTCIES 50 263 6,700

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