People have been moving to McHenry County by the thousands in search of the good life. They like the touch of country living with more open space and less crime and congestion.
They’ll buy a home in one of the dozens of subdivisions popping up or perhaps an older home on a five-acre estate. Some start their own businesses.
But all isn’t coming up roses.
Since 1993, the number of McHenry County residents filing for bankruptcy liquidation under Chapter 7 of the federal Bankruptcy Code has increased by 50 percent, to 632 from 421. The number of McHenry County residents filing for court-supervised financial reorganization under Chapter 13 of the code has risen by 31 percent, to 135 from 103, during the same period.
These increases outpace the 15 percent population growth since 1993 in what the U.S. Census Bureau says is the fastest-growing county in Illinois and the seventh-fastest-growing county in the United States.
McHenry’s population is now 230,550, up from 183,241 in 1990 and 147,897 in l980, according to the Census Bureau.
“Everybody who comes to me seems to be living on the edge financially,” said Richard T. Jones, a Woodstock bankruptcy attorney.
“Both parents are working, they have a couple of kids and they were able to pay all of their bills until somebody became seriously ill or lost their job. They got to the end of their financial rope. It’s been said that many people are three paychecks (away) from living on the street.”
Jones said some couples in bankruptcy proceedings had been spending up to 50 percent of their monthly income on mortgage payments.
“Some of them even took out `bridge’ (short-term) loans to make the down payment, and they have that obligation in addition to the monthly mortgage payments,” Jones said.
He added: “Everybody seems to need a new car, too, and they are up to the limit on their credit cards. They use a loan on one card to pay off the balance on another one.”
To some degree, the increasing U.S. Bankruptcy Court filings by McHenry County residents reflect a national trend. Such filings have increased “in every one of the 94 federal court districts in the country,” said Samuel J. Gerdano, executive director of the American Bankruptcy Institute. The not-for-profit organization, based in Alexandria, Va., is a national research arm for 5,500 lawyers, accountants, judges and lenders.
“Consumer bankruptcies were up 28 percent nationally last year, with the largest increase being in the Los Angeles area, where the increase was 35 percent,” Gerdano said.
Bankruptcy Court filings by businesses were up 3 percent last year from the prior year, he said.
“Consumer spending is two-thirds of the gross domestic product,” Gerdano said. “That’s why we see an increase in filings when the economy is booming as well as during a recession. Americans also have historically had a low savings rate.”
Michael Chmiel, a Crystal Lake bankruptcy attorney, said the typical McHenry County resident who files for protection from creditors is a man in his 30s, married with children, owns a house valued at between $110,000 and $200,000 and earns between $25,000 and $50,000.
“Their house may be in foreclosure proceedings for as long as seven months, but they still feel until the last minute that they can come out of it,” said Chmiel, chairman of the commercial banking and bankruptcy law section of the Illinois State Bar Association.
“When the people get tired of late-night phone calls from creditors, they call us. We become not the white knight but the gray knight. We file for bankruptcy, and this buys them some time. Collections are cut off until the proceedings are concluded, unless a creditor gets special relief from the court.”
Chmiel added: “You may lose most of your assets, but you get a fresh start. That’s the whole philosophy of bankruptcy. The price you pay is a blot on your credit history for up to 10 years.”
Legal fees for a typical liquidation or reorganization range from $800 to $1,500, and the filing fee is $160, Jones said. In a reorganization, a trustee oversees a payment plan for about five years. Debtors are able to keep their houses and are looked upon more favorably than if their assets had been liquidated in a Chapter 7 proceeding, Chmiel said.
Scott Bentley, a bankruptcy attorney in the City of McHenry, said a Bankruptcy Court filing doesn’t carry the stigma it once did.
“Years ago, a person filing a bankruptcy was considered a deadbeat,” Bentley said. “Now, they realize that it’s more a starting point to re-establish credit. I’ve had clients get new car loans a year after a bankruptcy, and mortgages after two years.
“They get credit cards within a matter of months, although they aren’t the same cards they had. In fact, my clients were actively solicited by credit card companies while the bankruptcy proceedings were going on.”
Debtors may not escape payments on some obligations, including alimony and child support, most taxes, school loans, criminal restitution orders, fines and debts incurred through fraud.
