As the economy continues to struggle, one indicator keeps rising nearly every month — bankruptcy filings.
Job losses, medical payments and other pressures have pushed a rising number of Americans to the courts in search of protection from creditors, with bankruptcy filings up 29 percent so far this year.
Yet bankruptcy isn't a magical solution for many debt-burdened people. It won't give everyone the clean financial slate they envisioned.
For one thing, bankruptcy eligibility rules are tighter today than in years past. In particular, Chapter 7 filings, which generally provide a fresh financial start, are basically limited to people with moderate incomes.
Chapter 13 filings, which allow debtors to arrange a repayment plan, come with restrictions of their own. Nearly all consumer filings are either Chapter 7 or 13 cases.
In addition, not all types of debts can be discharged in bankruptcy proceedings.
Steven Kaminski learned that the hard way. The 39-year-old Phoenix resident filed for bankruptcy several years ago but wasn't able to wipe the slate clean on his education loans. Student debts along with child support, alimony and past-due income taxes aren't easy to eliminate.
Kaminski had accumulated about $36,000 in loans upon earning his bachelor's degree in business about a decade ago.
But because of lingering medical expenses, other bills, bouts of unemployment and a modest-paying job, he hasn't paid off those obligations.
To the contrary, Kaminski said mounting interest payments have pushed his student-loan burden to nearly $100,000.
"I'm very bitter about the whole thing," he said. "If I could just get rid of the interest, I'd think that would be a win."
Bankruptcy filers used to be able to get out from under student loans, but Congress tightened the rules decades ago amid reports of abuses.
Specifically, students taking out big loans to fund a law, business, medical or other professional degree sometimes would discharge the debts in bankruptcy court, then turn around and start high-paying careers, said Don Gaffney, a partner at Snell & Wilmer in Phoenix.
Today, education debts, including loans not guaranteed by the government, can be discharged only when bankruptcy filers can show hardship — and that's not easy.
"You would pretty much need to be working at the poverty level through no choice of your own," said Tempe, Ariz., attorney Joe Volin.
You might get out from under an education debt if you didn't borrow the money specifically for educational purposes.
"You'd need to prove you can't pay now and never will be able to pay," said Gilbert, Ariz., attorney Chris Dutkiewicz.
"If you paid all your tuition on a credit card, you might be able to discharge it," Dutkiewicz said.
Child support and alimony are other types of personal debts that usually stay in place despite a bankruptcy filing.
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