My income doesn't increase, but my mortgage does

The colorful graphic in the previous post was originally found in another Wall Street Journal report (also free content today) about the rapidly increasing number of homeowners filing for bankruptcy in an attempt to save their home from foreclosure.

Most consumers filing for bankruptcy continue to do so under Chapter 7 of the federal Bankruptcy Code. Under that provision, a person must forfeit certain assets -- including, in some cases, a portion of home equity. Those assets are sold to pay off debts.

While Chapter 7 filings stop foreclosure proceedings, the break is usually only temporary. As a practical matter, many homeowners who file under Chapter 7 lose their homes.

In recent months, however, an increasing number of homeowners have filed for bankruptcy under Chapter 13, which staves off foreclosure proceedings while the homeowner works out a plan to pay off mortgage debt and other obligations over time -- usually three to five years. To qualify, debtors must have a regular income and must stay current on their new bills. About four in 10 filers today are filing under Chapter 13 -- up from three in 10 two years ago. The 2005 change in bankruptcy laws was designed in part to shift more filers to Chapter 13, which forgives less debt than Chapter 7.

In California, one of the nation's hottest markets during the recent real-estate boom, the number of nonbusiness Chapter 13 petitions in the second quarter of the year more than doubled from a year earlier, according to records compiled by the Administrative Office of the U.S. Courts in Washington. Over the same period, such filings increased nearly 40% in the northern district of Illinois, which includes Chicago, and 70% in Massachusetts.

"It's a mess," says William McLeod, a Boston bankruptcy attorney who says he is receiving twice as many calls from debtors as he did a year ago. "This is fed right now by real estate, and what's been this mortgage frenzy in the last several years."

Yes, it is quite a mess - if only we could turn back time.

A couple human interest stories follow what is excerpted above. The highlight comes in the form of comments from 46-year old Donna Randles of Chicago who notes, "As things progress, I'm learning that my income doesn't increase, but my mortgage does."