Philip and Kimberly Viles are still employed.

But after forced job changes and shortened workweeks, the Ooltewah couple now earn only a fraction of what they did a year ago. As their bills piled up and creditors kept calling, the Vileses last month joined the growing number of Chattanooga families finding relief in federal bankruptcy court.

“It got to a point where we almost didn’t have enough money to eat,” said Mr. Viles, a 37-year-old steelworker at Mueller Corp. in Chattanooga. “Once it starts happening, there’s a domino effect you can’t stop, and before we knew it we were getting 20 to 30 phone calls a day from creditors.”

Last year, the number of Chattanoogans and North Georgians going broke rose by about 25 percent. Experts expect the Vileses will be among an even larger number of families seeking court protection for their debts in 2009.

“Consumers are under great financial stress with no immediate end in sight,” said Samuel J. Gerdano, executive director of the American Bankruptcy Institute. “We expect the upward spike in personal bankruptcies to continue in 2009.”

U.S. consumer bankruptcy filings increased nearly 33 percent last year. Filings still are below the record highs reached before bankruptcy laws were changed in 2005, but even that record could be shattered if the economy continues to worsen, experts say.

A recent survey of bankruptcy court lawyers by the American Bankruptcy Institute found that most expect bankruptcy filings to jump at least 35 percent this year.

Tom Ray, a bankruptcy attorney in Chattanooga for the past 38 years, says the market is as bad as any he’s ever seen.

“I think it’s worse today than in the worst of the 1970s or the 1980s because there just isn’t the money available today that we saw in the past,” he said. “Any kind of business that isn’t considered essential for consumers seems vulnerable.”

Even some of Chattanooga’s biggest businesses and entrepreneurs recently have filed for bankruptcy. In December, Cleveland, Tenn., businessman Steve “Toby” McKenzie filed a Chapter 13 petition listing more than $150 million of debts from more than a 100 of his real estate and other business ventures. On Wednesday, one of Chattanooga’s biggest auto dealerships, Prebul Auto Group, filed a Chapter 7 bankruptcy petition to liquidate the remaining nine car dealerships owned by Joe Prebul. Mr. Prebul is charged with 11 counts of fraud in an investment scheme used to get money to prop up his business and lifestyle while his dealerships were losing money in the past three years.

Mark Young, a bankruptcy attorney in Chattanooga for the past 31 years, said too many area residents are overburdened with debt and unable to cope with the loss of a job or a medical emergency.

“People are right on the edge, and now that edge has been taken away from them,” he said. “What makes this worse is that I’m afraid it is going to be more long term than previous recessions because I don’t think all of the shoes have yet to drop.”

changing chapters

With less income and home equity because of the economic downturn, a larger share of those filing for bankruptcy are filing Chapter 7 liquidations, rather than Chapter 13 reorganization plans. In Chapter 7, all debts can be erased, while in Chapter 13, attempts are made to repay at least some of the debt.

In 2008, 59.1 percent of the bankruptcies filed in East Tennessee were Chapter 7 liquidation petitions, up from 53.2 percent in 2007. In the North Georgia district of the U.S. Bankruptcy Court, 53 percent of the consumer filings last year were Chapter 7 liquidations, up from 46 percent in 2007.

“With so many people either out of work or only employed part time, we’re seeing a lot more Chapter 7 filings because people just don’t have the wages to do a reorganization,” said Brent James, consumer bankruptcy attorney in Rossville, who files cases in both Georgia and Tennessee.

The Bankruptcy Abuse Prevention and Consumer Protection Act adopted by Congress in 2005 succeeded in reducing the share of inidividuals trying to get rid of their debts quickly in a Chapter 7 filing. Before approval of the bankruptcy reform law in 2005, more than 73 percent of the bankruptcy filings in East Tennessee were Chapter 7, according to court statistics.

Creditors often prefer Chapter 13 reorganization plans that help those in bankruptcy repay their debts over time, often with little or no interest charged and longer repayment schedules.

Joseph Reed and his mother, Kathleen, are trying to save their North Chattanooga home of 35 years under a bankruptcy reorganization plan. Mrs. Reed, an ophthalmic laboratory technician, filed for Chapter 13 bankruptcy in 2004 to avoid having the family home foreclosed upon after her husband died and the family was unable to keep up the house payments.

Mr. Reed, a self-employed auto mechanic, said that in 2001 he obtained a $76,000 loan from Option One Mortgage Corp. to renovate the 103-year-old house.

Court documents show that the Reeds owed more than $117,000 on the house when bankruptcy was filed. Mr. Reed said the $76,000 loan had ballooned because of interest and penalties for late payments.

Since 2004, the Reeds have paid their mortgage holder more than $46,000 through the bankruptcy court, said C. Kenneth Still, the trustee overseeing Chapter 13 bankruptcy cases in Eastern Tennessee’s Southern and Winchester divisions. The family has paid $811.12 a month in mortgage payments, which Mr. Still distributes to American Home Mortgage, Option One’s successor. The late fees have been paid off, Mr. Still said.

Consumer counselors urge homeowners struggling with their payments to talk to their lender at the first sign of trouble to avoid foreclosure. In Tennessee, foreclosure proceedings start after three months of delinquency, said Charles Hixon, director of the Consumer Credit Counseling Service office in Chattanooga. At that point, it’s extremely hard to help a client, he said.

“As soon as you realize there are problems in meeting your mortgage, you need to be proactive,” he said.