More than 22,000 Minnesotans filed for personal bankruptcy in 2010, many worn down by the relentless job and housing markets that have persisted in the economic recovery. It is the fourth straight year of increasing bankruptcies and is 87 percent higher than in 2007, before the recession settled in.

In addition to medical bills, divorce and chronic overspending -- ever-present bankruptcy catalysts -- the more recent problems of long-term unemployment and homes that are worth less than people paid for them continue to push people to court.

Even December, usually a slow month for bankruptcy attorneys as families try to forget their financial struggles and celebrate the holidays, remained busy for Barbara May. "We're swamped here," the Roseville attorney said. Nationally 1.53 million Americans filed for bankruptcy in 2010 -- 9 percent higher than 2009, when 1.41 million people filed, according to the American Bankruptcy Institute.

The 22,070 Minnesota filers in 2010 represented a 4 percent increase from the previous year and were second only to the record 25,635 Minnesotans who filed in 2005, when people rushed to court to beat a change in bankruptcy law that made it harder and more expensive to file.

For many, the problems start with unemployment. If unemployment checks don't cover expenses, families dip into savings or tap credit to make ends meet. In the past, families might consider selling their home to cash in the equity, but now many in financial difficulties don't have equity to tap, whether it's because they used their homes as ATMs during the housing boom or because their house has lost so much of its value.

May says lower-income families tend to exhaust their resources quickly. But higher income clients -- the salespeople and general contractors and financial professionals -- resort to "draining the well," May's term for spending down all of their assets, including retirement accounts that are protected in bankruptcy.

Then there are housing woes. Bankruptcy attorneys are seeing more families who let their houses go via foreclosure, hoping to right their finances by eliminating their mortgage payment. But the debt collectors come calling for their large second mortgage, and they realize bankruptcy is the only way out. "Those second mortgages are poison," St. Paul bankruptcy attorney Dick Pearson said.

He says the mind-set around preserving the home in bankruptcy has changed significantly in recent years, as homeowners realize it will take years for the housing market to bounce back. "It used to be, 'I gotta save my house, I gotta save my house,'" said Pearson, a bankruptcy lawyer for 30 years. "Now it's, 'I gotta lose my house, I gotta lose my house.'"

Mixed signals for 2011

Craig Andresen, a bankruptcy attorney in Bloomington, thinks debtors also see the languishing housing and job markets, feel hopeless about their future finances and call his office to make an appointment.

Will 2011 be a record year for bankruptcies? Economists say there are mixed signals. One sign pointing to fewer bankruptcies is the decline in consumer credit card debt. Revolving consumer credit declined for the 27th month in a row in November, according to the monthly outstanding credit data tracked by the Federal Reserve. While it hasn't helped thus far, experts say that, historically, bankruptcy filings eventually follow declining debt levels because the amount of credit card debt tends to weigh heavily on a family's decision to file.

Others figure the bankruptcy rate can't fall until the markets that drive people to file improve. Jeanne Boeh, an economics professor at Augsburg College, says bankruptcies can't slow until foreclosures do and more people go back to work. Recovery will be "a long, long slog," said Boeh, who isn't expecting much progress until at least 2013.

Others predict bankruptcy rates will stay high even after the unemployment rate improves. Families often wait to file for bankruptcy until they get a job, look at their new paycheck and their expenses and realize their revised budget doesn't work. Others file to avoid having their wages garnished by creditors. "All the bankruptcies on earth won't help a guy without a job," Andresen said.

Kara McGuire • 612-673-7293