February Bankruptcy Filings Show Personal Bankruptcies Continue to Rise
In this bad economy, it was something of a surprise to a 10% drop in individual bankruptcy filings in January. So our Costa Mesa consumer bankruptcy attorneys weren't surprised to see that bankruptcies resumed their climb in February. According to a March 3 USA Today article, there were 111,693 bankruptcies last month. That's up 9% from January, 14% from February of 2009 and an alarming 47% from February of 2008. The numbers come from the American Bankruptcy Institute, a nonpartisan organization of bankruptcy attorneys, judges, bankers, scholars and others.
Samuel Gerdano, the executive director of the ABI, said consumer debt from better years is putting more strain on households these days, thanks to high unemployment. Another expert suggested that bankruptcies have become more popular because of the housing crash, which limits or destroys homeowners' ability to use home equity lines of credit to pay down other debts. Interestingly, the increase was largely in filings for Chapter 7 bankruptcy, which is the shorter "liquidation" bankruptcy. In the other major type of consumer bankruptcy, Chapter 13, filers repay debts over time and the remainder is forgiven. Chapter 13 filings were down 3% in February. This is particularly noteworthy because, as the article noted, Chapter 13 is the type of bankruptcy recommended for homeowners who want to save their homes.
As Covina personal bankruptcy lawyers, we'd also like to note that the 2005 changes to bankruptcy law were specifically intended to push more households toward Chapter 13. In brief, the changes allowed fewer people to qualify for Chapter 7 filing by lowering the amount of income and assets that would disqualify them. This makes the movement away from Chapter 13 even more remarkable, because it shows that fewer Americans have enough income and assets to disqualify them from Chapter 7. This is a bad sign for the economy. The lower number of Chapter 13 filings is also a bad sign because it shows that not many people are finding bankruptcy useful for saving their homes. This may mean they don't have enough home equity to protect them. Finally, the spike in Chapter 7 filings suggests that one stated goal of the 2005 bankruptcy law isn't working -- there's no drop in unpaid debt, despite increased obstacles to filing for bankruptcy.
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