Monday, November 09, 2009
Personal Bankruptcies on the Rise
The American Bankruptcy Institute recently reported that the number of Americans filing personal bankruptcy increased 9% in October. In total, 135,914 people filed bankruptcy last month. Approximately one third of these were Chapter 13 Bankruptcy filings, which places you on a repayment plan that can last as long as five years.
It is expected that more than 1.4 million people will file for bankruptcy in 2009, an increase of more than 30% from last year. This would also be the highest annual total since 2005. Furthermore, there was a 7% increase in businesses filing bankruptcy. These statistics indicate that our economy is still struggling to recover from the recession.
Many Americans are struggling to pay off debt incurred by credit cards and home equity loans. The rising unemployment rate has forced many Americans into desperate financial situations they previously did not anticipate.
Some families have been able to avoid bankruptcy by drawing on money in savings accounts and retirement funds. However, many people who have been unable to find work are starting to exhaust these safety nets and are now forced into filing bankruptcy.
The last time bankruptcies were this high, it was the result of a change in bankruptcy laws rather than a reflection of a struggling economic climate. In October 2005, Congress changed the bankruptcy laws, making it more difficult for individuals to file Chapter 7 Bankruptcy, which enables them to clear their debts. In an attempt to avoid having to file under Chapter 13, many people rushed to file Chapter 7 in the months before the change in the law took effect.
Unfortunately, it does not seem that the current trend of rising bankruptcies will subside until the economy turns around.