With the economy worsening, and home values plunging, more bankruptcy filings are expected in 2008.
"Now people are in mortgages they can't afford and homes they can't sell and that has an impact on their will to continue to spending money, which drives the economy," said Samuel Gerdano, the executive director of the nonprofit American Bankruptcy Institute in Washington, D.C. "It is related, even circular."
The states with the biggest increase in bankruptcy filings were those where the real-estate bust hit hardest, including California and Nevada.
In Pennsylvania, where the foreclosure rate is relatively modest, the bankruptcy rate of 2.4 filings per 1,000 residents last year was below the national average and 26th overall.
The numbers show that 29,962 Pennsylvania residents and businesses filed for bankruptcy in 2007, up a quarter from 23,932 in 2006. The rate of increase in business filings far outpaced personal filings, up nearly 50 percent.
Of Pennsylvania's three federal districts, the 25-county western district registered the most filings, with nearly 12,300. The 33-county district covering central and northeastern Pennsylvania registered the biggest percentage increase, at nearly 39 percent.
The increase follows a significant drop in bankruptcy filings in 2006, after a new law made it more difficult for consumers to seek bankruptcy protection from creditors.
A bankruptcy lawyer in suburban Pittsburgh, Stephen M. Otto, said he has seen more people lately driven into bankruptcy by rising interest rates on adjustable-rate mortgages, a loan product offered by mortgage companies in recent years.
With interest payments resetting, monthly payments increased dramatically, Otto said.
Mortgage lawyer Charles O. Zebley Jr. in Uniontown - the heart of southwestern Pennsylvania's depressed coal country - said he has seen more people willing to walk away from their homes, particularly those with second and third mortgages.
"A few years ago people would say, 'I won't leave, I'm not leaving,"' Zebley said. "I'm seeing more people who are willing to walk away form their homes."
People who stop making those payments can probably stay in the home for a year until they have to leave, giving them an opportunity to save a little money for moving expenses and to find a new home, Zebley said.