BY DAN VOORHIS
The Wichita Eagle
Bankruptcies are surging in Sedgwick County while home foreclosures are falling.
But while the first seems bad and the second seems good, some local experts say that the opposite may be true.
Bankruptcies filed in Wichita have risen between 69 and 166 percent a year over the last five years, according to filings in U.S. Bankruptcy Court through the first quarter. There were 12 times more bankruptcies in the past year than five years ago.
Over the previous 12 months, there were 2,847 bankruptcies of all kinds filed in Wichita. A large percentage are for residents outside Sedgwick County.
The biggest driver for bankruptcy is — no surprise — job loss, said Jeff Witherspoon, director of Consumer Credit Counseling Service in Wichita. All people seeking bankruptcy must go through credit counseling.
Unemployment has dragged on for months for many, exhausting their unemployment benefits, their savings and their ability to keep up with their debts, he said.
"We're starting to see something we haven't before: people with no incomes," Witherspoon said. "These are people who have run out of unemployment (insurance)."
Counseling is often as much about dealing with the emotional fallout as the financial, said Ryan Deitchler, one of Witherspoon's counselors.
"There is a lot of anger, directed at whatever," he said. "They feel they are victims. They think had they not lost their job or gotten sick or something else beyond their control, they wouldn't be here."
The reaction that bugs Deitchler the most is no emotion. These are the people for whom bankruptcy is no big deal, just a way to brush off annoying creditors.
"But that's not the majority," he said. "More often it's anger, sadness. I hear on a daily basis: 'We didn't plan on this. We didn't want to do this.' "
'Embarrassing'
Ron and Leona Sparkman, who live in a west Wichita, declared Chapter 7 bankruptcy in January.
He lost a good job in 2008. They scraped by until he eventually found a commission-only sales position with the Better Business Bureau, but he never earned more than $1,000 or $2,000 a month.
Credit card bills that were easy to manage when he made good money proved too much. Missed bills resulted in a late fees. Calls from bill collectors mounted.
"They'd start calling at 7 a.m." Ron Sparkman said. "You'd say 'I have no job. I'm spending all my time trying to find one' and they'd say 'When are you going to pay the bill?' They'd just push until you explode."
In September, he retired and started collecting $1,000 a month in Social Security. Together with his wife's pension and Social Security check, they had a good income, but they had accumulated $33,000 in debt to credit card companies and other unsecured creditors. The collection agencies kept calling.
Sparkman is the kind of guy who wore a holstered pistol to the door when a stranger came knocking — worried about the recent rash of home invasions. He blames President Obama for much of the country's and his own economic difficulties.
He says he was raised to act honorably and pay his bills. That's what makes declaring bankruptcy so difficult.
"It's so terribly embarrassing," he said. "It breaks my heart. My dad always taught me that you don't cheat people."
But bankruptcy got the calls to stop. They kept the house and car. Their expenses are now well under control.
"The way I look at it is you have to live and survive," Leona Sparkman said.
Falling foreclosures
So why are foreclosures falling if bankruptcies are rising?
The answer is that while they both reflect economic distress, they're quite different. One can go through bankruptcy without foreclosure, and vice versa.
The most common form of personal bankruptcy, Chapter 7, generally eliminates unsecured debt such as credit cards, medical, utilities, even unsecured payday loans.
It won't discharge taxes or education loans, although it may allow such debt to be restructured.
Foreclosure, on the other hand, is tied to the peculiarities of the housing market.
Foreclosures rose steeply between 2008 and 2010, but have dropped over the last seven months. In the first quarter, scheduled foreclosures were down 32 percent from the first quarter of 2010.
Stan Longhofer, director of the Center for Real Estate at Wichita State University, speculates that banks allow delinquent homeowners to stay because they don't want to put the house back on an already oversaturated housing market.
So the decline in foreclosures may really be evidence of the rotten real estate market.
"At least somebody would still be living there, so the sump pump is still working and nobody is stripping out the copper," he said.
Bankruptcy is good?
Just as the fall in foreclosures isn't necessarily good news — it just means the market is bad — attorney Eric Bruce maintains the surge in bankruptcy filings is actually good news.
When people are flat broke, he said, they have nothing to protect and can't afford the $1,000 for a bankruptcy lawyer, anyway. Even the collection agencies can't get blood from a stone.
Some filers may still be unemployed and desperate, he said, but more and more are not.
"What's happened in the last six to 12 months is that debtors now have something to protect," he said. "They're getting jobs. Now they have something to protect and something to pay the attorney."
Reach Dan Voorhis at 316-268-6577 or dvoorhis@wichitaeagle.com.