State's Bankruptcies Climb as Recession Hits the Rich

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On economic indicators, Washington state usually does well. Our average income, at nearly $38,000, is slightly higher than the nation's, and our 9.2 percent unemployment rate is slightly lower. When it comes to bankruptcy, however, we've gone bust.

According to an Associated Press report out today, the state saw a 45 percent increase in bankruptcies in 2009--beating the 32 percent increase nationally.

Why?

"It's probably because we were doing better than the rest of the country until last year," says Edmund Wood, one of seven attorneys in King County appointed by the federal government to serve as trustees in the individual bankruptcy cases known as Chapter 7 filings. Now, bankruptcy filings show, the recession has caught up with us--and with what Wood calls "a whole different segment of the population."

One year ago, Wood says, he dealt with a lot of poor people. Of the 60 cases he'd handle at any given time, only five or six involved people who owned their own homes. In contrast, 58 of 60 cases during a recent period involved real estate.

He's currently handling the case of a woman who owns a $3.5 million house on Lake Washington. The onetime health care executive recently lost a job that paid $400,000 a year. At the same time, she accumulated a $2 million tax debt on a side business she owned. When times were good and financing was easy, the woman could have borrowed against her house to pay the debt, Wood observes. Not now.

Many others he's seeing are people who lost their shirts in the real estate industry, whether as developers or contractors.

Makes sense, says state economist Arun Raha. He points out that nearly one-third of the 160,000 jobs lost in this state since February 2008 have been in the construction industry.

 
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