The phones calls to Gerald Bauer Jr.'s law office have increased 50 to 70 percent. And the people calling are asking Bauer, a bankruptcy attorney with a busy practice in Oak Forest, if they should file for bankruptcy.

Bauer is hardly the only bankruptcy attorney seeing a rise in business these days. The south suburbs, including the Palos area, are not immune to the economic problems that are leading an ever-growing number of people to declare personal bankruptcy.

"People look at areas that are generally well-off, such as Palos Heights, and think that these areas wouldn't be affected by bankruptcy," Bauer said. "But I'm getting a lot more calls from people in some of the wealthier suburbs. There are no areas that are immune from this."

Falling home values and a national unemployment rate above 9.5 percent have combined to send many people into financial crisis mode.

In the past, homeowners could rely on home equity loans, which came with low interest rates, to pay off their soaring credit-card debt. That's not the case today: A growing number of homeowners have seen their residences fall in value. Depending upon when they purchased their homes — homeowners who purchased during the height of the housing boom in 2004 and 2005 are particularly susceptible to falling home values — they may not have enough equity to take out home equity loans.

And this is a problem that isn't going away anytime soon. A study by financial data firm CoreLogic found that 23 percent of all U.S. residential property owners with mortgages were underwater at the end of the second quarter of this year, meaning that they owed more on their loans than what their homes were worth.

In Illinois, 19.7 percent of homeowners with mortgages had negative equity. That comes out to more than 440,000 homeowners who owed more on their loans than what their homes were worth.

At the same time, south suburban residents who are out of work are finding that they can no longer afford to pay their monthly mortgage bills. Desperate, they're turning to bankruptcy protection.

"There are a lot of people who had been overspending for quite some time. They always managed to live paycheck to paycheck," Bauer said. "But take their jobs away and replace them with unemployment checks, and it makes it almost unbearable."

A growing problem

The American Bankruptcy Institute reported that the number of consumer bankruptcy filings in the United States rose 11 percent in the first nine months of this year when compared to the same time period in 2009. More than 1.16 million U.S. consumers have filed for bankruptcy protection during this time. That's the most since 2005, when a change in bankruptcy laws inspired a rush of filings.

The south suburban area is mimicking these trends. More than 49,000 individuals as of Nov. 2 had filed for bankruptcy protection in the U.S. Bankruptcy Court's Northern District of Illinois, a district that includes the Palos area.

Christine Piesiecki, a bankruptcy attorney in Palos Hills, pointed to the struggling housing market as one of the main reasons for the increase in bankruptcy filings locally.

"In the Palos area, it all comes back to the housing market," said Piesiecki, who estimates that her bankruptcy business has increased four-fold since the start of the economic downturn. "Home values were high here. A lot of people took out adjustable-rate mortgages. Now their mortgages are falling and they can't make the payments. And they can't refinance into a different loan because housing values here have fallen for many homeowners."

Not only are local homeowners increasingly shut out of home equity loans that could help them deal with their rising debt, many who are out of work or underemployed have turned to their credit cards to help them make their mortgage payments, Piesiecki said. This can quickly cause their revolving debt to spiral out of control.

The Palos area is also home to many tradesmen, including carpenters, builders and plumbers. Thanks to the housing slump, these people are struggling to find work. They're also struggling to pay their bills, and may turn to bankruptcy as a last resort, Piesiecki said.

"They didn't save enough when times were good," Piesiecki said. "They may have bought more house than they could afford. Now, with the state of the economy, they can no longer pay their bills."

Options

Filing for bankruptcy is far from an easy process. The move comes with serious ramifications. A bankruptcy remains on consumers' credit records for seven to 10 years, depending under which chapter is filed. During this time, consumers will struggle to obtain loans or credit cards.

Individuals can file for Chapter 7 or Chapter 13 bankruptcy protection. Under Chapter 7 protection, consumers will wipe away many of their debts. But this type of bankruptcy stays on their credit reports for 10 years.

Under Chapter 13, a bankruptcy judge drafts a repayment plan that allows individuals to pay back all or a portion of their debts at a pace that they can afford. This type of bankruptcy protection remains on consumers' credit reports for seven years.

"Filing for bankruptcy protection is not a get-out-of-jail free card," Bauer said. "You will pay the price for filing. Your credit is certainly impacted. You'll pay higher interest rates until the bankruptcy falls off your credit history. But it's sometimes better to declare bankruptcy as opposed to just hoping that things get better. If you are consistently late on your credit card bills, that won't help your credit, either."