Northwest Indiana's personal bankruptcy filings spiked in 2008 as Chapter 7 filings grew 33 percent compared to a year earlier, and Chapter 13 filings were up 12 percent.

"It's a reaction to the terrible economy across the board," said Kenneth Manning, a Chapter 7 Bankruptcy Court Trustee for the Hammond federal court. "Filings in '08 were a direct correlation to how bad the economy is, real estate market is and about jobs in general. It's like a log jam broke lose, and now it's steamrolling."

There were 2,327 Chapter 7, or consumer/personal bankruptcy, cases filed in the Hammond court last year, up 586 cases from 2007, court records show. There were 2003 Chapter 13 cases recorded.

In a Chapter 7 liquidation bankruptcy, filers must give up their nonexempt assets, but they can walk away from their unsecured debts and start over with a virtual "clean slate." However, filers must continue to pay secured creditors, including those for home or car loans, if they want to retain those assets.

For the year, the Hammond Division saw a 22 percent spike in total bankruptcy cases filed, with 4,335 cases filed for the year compared to 3,530 for 2007. Total bankruptcy filings soared nationwide in 2008.

National Bankruptcy Research Center data released by the American Bankruptcy Institute shows that overall consumer bankruptcy filings, including both Chapter 7 and Chapter 13, for the calendar year reached more than 1 million compared to the 801,840 total consumer filings recorded in 2007.

"Consumers are under great financial stress, with no immediate end in sight," said Samuel J. Gerdano, the bankruptcy institute's executive director. "We expect the upward spike in personal bankruptcies to continue in 2009."

Manning, of Dyer, who has been an attorney for 30 years and a bankruptcy court trustee for 25, said in the past, most people filing Chapter 7 were either "plain stupid, irresponsible or had large uninsured medical costs."

"People filing Chapter 7 now are those people who lost their jobs and those whose who were making a $80,000 gross salary a couple of years and half that now," he said. "And at the same time, the real estate market has flattened out."

During all his years as a bankruptcy court trustee, 2008 was the first time in his career when many filers didn't try to keep their homes, Manning said. Home values have dropped so much that filers can't sell their homes for enough money to pay off their mortgages and still get the amount of their equity out of the sale.

Manning expects to see more personal bankruptcies in 2009, especially for those among small business owners who depend on customers' discretionary spending and from those involved in the residential construction industry.

"By this spring, you're going to see another pressure of filings on the small business owner," he said, explaining most will file Chapter 7 rather than Chapter 11 because the former is much less expensive. "We're already starting to see them."