Recently released numbers on personal bankruptcy filings show that April’s numbers were down from both March 2011 and April 2010, more or less following the trends that experts have predicted for the remainder of this year. Here’s a closer look at the specifics, and what this means for you.
Breakdown of April Bankruptcy Figures
The 21 business days in April saw 130,000 total bankruptcy filings, which comes to 6,177 filings per business day.
The number of filings shows a decline of 2.9 percent from March, and 7.1 percent from April 2010.
So far this year, filings have decreased each month at a rate somewhere between 5.6 percent and 8.2 percent compared to 2010 numbers.
In the past 12 months, 4.9 in 1,000 people have filed bankruptcy petitions. The number in 2004 (before the new bankruptcy law was passed) was 5.5 per thousand.
According to these statistics, April 2011 bankruptcy numbers suggest a decline in bankruptcy filings both compared to recent months and to last year. Bankruptcy filing rates, though not as popularly cited as unemployment numbers, can be used to offer at least a partial picture of economic recovery.
Projected Bankruptcy Filings for 2011
Based on the numbers for April and 2011 so far, predictions for total bankruptcy filings this year include the following:
1.475 million bankruptcy filings if Americans continue filing at the daily average rate (5,876) for the first four months of 2011 combined;
1.525 million bankruptcy filings if we continue at April’s daily average rate (6,177); or
1.499 million bankruptcy filings if the last eight months of the year make up the same proportion of filings as they did in the last two years.
How does that compare with the recent past? In 2010, the country had 1.56 million total filings; in 2009, the total was 1.474 million; and in 2008, 1.118 million. If filings stay on track, then, it looks like 2010 might have been the peak year for bankruptcy filings and 2011 will be the beginning of a decline.
There is no guarantee, however, that bankruptcies will steadily decrease. After all, the housing market is still glutted with foreclosure properties and home prices don’t seem to be rising. As a new wave of foreclosures begins to affect homeowners, combined with sluggish growth in the jobs sector, the need for bankruptcy protection could climb or remain constant for a few years to come.
Bankruptcy Filings and the “New” Law
If nothing else, these latest bankruptcy numbers suggest (once again) that the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 had little real effect on bankruptcy filing totals.
Those truly in need of the financial relief and protection bankruptcy offers are still largely able to get that help from the bankruptcy court, despite the tightened restrictions the law introduced.
A study recently published by the web site Find Law indicates that a considerable percentage of the U.S. population (one in eight survey respondents, or nearly 13 percent) has either considered filing for bankruptcy or actually done so.
That figure may seem high, but in a nation of consumer debt, depreciating home values and a limited job market, perhaps it’s no wonder that so many of us are in need of serious the serious financial protection and debt relief that bankruptcy can offer.
Who Is Considering Bankruptcy?
The study breaks down potential bankruptcy filers in part by age:
Americans between 35 and 54 are reportedly the group most likely to consider bankruptcy as an option.
Americans 18 – 34 and 55 and older are, according to sources, half as likely as the middle age group to consider or actually file for bankruptcy.
Senior citizens (those 65 and older) are apparently the least likely group to consider bankruptcy as a debt relief option, at only seven percent.
How Have Bankruptcy Filing Numbers Changed in Recent Years?
Sources indicate that in 2010, 1.5 million Americans actually filed for bankruptcy protection. This number marks the highest annual total since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and tightened the standards for those interested in bankruptcy protection.
Why Do So Many People Need Bankruptcy Protection?
While no two bankruptcy cases are alike, bankruptcy filers often note common triggers that led them to seek the protection of the bankruptcy court. These include:
Unexpected medical expenses: Illness and injury can both cause serious medical bills to build up, particularly for those people who are uninsured or underinsured. And even an otherwise happy event, like the birth of a child, can prove very expensive.
Change in family makeup: Divorce and death are difficult to deal with on their own, but are often compounded by the financial troubles they cause. Many families are forced to face unpleasant financial realities after divorce or death carries off a primary breadwinner.
Job loss or reduction: Even good employees are at risk of losing their jobs in the current economic climate, and even though layoffs have slowed in recent months, the unemployment rate remains high. It’s no secret that this type of financial burden can lead a household to seek bankruptcy protection.
Fear of foreclosure: Even those with good health and steady jobs may find themselves unable to keep up with their mortgage, and some families opt to file for bankruptcy in hopes of fending off mortgage foreclosure.
Considering the many factors that can contribute to a household’s decision to file for bankruptcy protection, it may be a wonder that only one in eight Americans has thought about personal bankruptcy!
A bill recently signed into law in New York outlines more extensive exemptions for petitioners filing under Chapter 7 of the U.S. Bankruptcy Code. The new law, according to Bloomberg news, has been lauded by consumer advocates and grumbled about by bankers and some city officials.
So what’s the big deal about changing Chapter 7 bankruptcy exemptions? A lot, if you’re interested in keeping your valuables when you enter bankruptcy protection.
How Chapter 7 Exemptions Work
To understand the significance of the New York law, it’s essential to understand how exemptions work in Chapter 7 bankruptcy. Here’s an outline.
Laws by state: Each state outlines its own exemptions and is responsible for updating those exemptions as values and costs fluctuate.
Protected property: Exemptions outline property that is protected from the Chapter 7 liquidation sale. Any property that is not protected by an exemption might be sold by a filer’s bankruptcy trustee to raise money to repay the filer’s creditors. However, in most cases there is no sale of any property thanks to the protection of exemptions.
Changes to New York Chapter 7 Exemptions
So what will change about the Empire State’s Chapter 7 exemptions? According to sources, a few things, including the following:
Increased homestead exemption: It seems that New York’s homestead exemption will increase from $50,000 to up to $150,000, a move, some proponents think, that will allow more filers to keep their homes in Chapter 7 bankruptcy. Other advocates reportedly suggest that the increased dollar amount is more in line with current property values in the state.
Increased vehicle exemption: Additionally, Chapter 7 filers will apparently be able to hold onto vehicles worth up to $4,000 above an associated loan (an increase from the earlier limit of $2,400 above). This exemption may make it easier to protect your car from repossession or towing if you have have traffic ticket debt.
Some analysts have reportedly suggested that the new changes to Chapter 7 exemptions in New York might make loans harder to come by in the state, as less money will be available for liquidation and creditor repayment in Chapter 7 bankruptcy filings. But for Chapter 7 petitioners in New York, the changes should be welcome.
Wondering about your state’s latest Chapter 7 exemption updates? For more information about the current state of Chapter 7 bankruptcy where you live, you can speak with a bankruptcy lawyer in your area.
The latest figures on personal bankruptcy filings in the U.S. have been released and it looks like 2010 will see the most bankruptcy cases since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect.
Here’s a refresher course on what BAPCPA did for filings in 2005 and what the latest numbers might mean.
How the “New” Bankruptcy Law Affected Filing Figures
New law announced: When news came down that BAPCPA would be signed into law, some consumers were afraid that the law’s provisions would make qualifying for bankruptcy protection much more difficult in the future.
A rush to file: Fearing that they would not be eligible for bankruptcy protection once BAPCPA regulations were on the books, many consumers filed for bankruptcy immediately before the new law took effect, meaning that filing figures for 2005 were exceptionally high.
A drop-off in filings: Because so many people filed before the new law took effect (perhaps earlier than they would have filed under normal circumstances), bankruptcy filings in the months following the implementation of BAPCPA dropped significantly. This caused BAPCPA supporters to claim the law had “worked” by decreasing bankruptcy filings.
A steady climb in filings: But, within two years of the laws going into effect, the U.S. economy was thrown into turmoil and millions of Americans have found themselves without work and in danger of losing their homes. Bankruptcy filing numbers have climbed since the initial decline, and 2010’s figures are no exception.
The Latest in Personal Bankruptcy Filings
This year, according to government figures, bankruptcy filings will reach about 1.5 million in 2010, the same annual level as the first half of the last decade. These numbers suggest that what the overall impact BAPCPA had on the number of bankruptcy filings was minimal:
More hurdles, same need: Though the new bankruptcy law made it more difficult (and more expensive) to file for bankruptcy, it seems that the added “hurdles” have not deterred those in financial distress from getting the protection they need, as some feared.
Little “abuse” to prevent: One bankruptcy myth that spurred the passage of BAPCPA was that a significant number of bankruptcy filings were abusive and/or fraudulent – that is, that people were abusing the bankruptcy system to get out of debts they could otherwise pay, or had no intention of paying when they first took them on. In fact, most studies show that a mere two percent of pre-BAPCPA bankruptcy filings could be considered “abusive;” that the total number of yearly filings hasn’t changed much since the new law took effect seems to support those findings.
If you need financial help, bankruptcy is an option: Finally, it’s important to note that people who honestly need the financial relief bankruptcy provides are, by and large, still able to qualify for that protection. To learn more about whether bankruptcy might be right for you, simply contact a lawyer practicing in your area.
The Federal Trade Commission issued new rules governing how debt settlement firms can charge consumers for their services. The new rules prohibit debt settlement firms from charging upfront fees for their services, which in theory will prevent some of the predatory practices that cost consumers so much money in the past.
Here’s a summary of some of the potential side effects these new rules might have on the debt settlement process.
Fewer Ads, More Honest Claims
A drop-off in ads claiming to settle debts for little money: A ban on hefty upfront fees will mean that simply bringing customers through the door will no longer guarantee income for debt settlement firms, which in turn will mean that dropping money on TV and radio commercials may no longer be worthwhile financially.
More selective consumer selection: Now that debt settlement firms cannot charge every customer large fees, they’ll have to more carefully choose which customers they agree to help. This will likely be good news, regardless of your goals. If you’re a good candidate for debt settlement, visiting a debt settlement firm may have a greater chance of helping you than in the past. And if you’re not a good candidate, the debt settlers may be less likely to waste your time and money with their services.
Claims made based on all customers: Before the FTC’s rules took effect, debt settlement firms commonly made claims based only on the settlement experiences of their most successful customers. Now, though, companies must advertise using figures that represent all their customers’ experiences, meaning that the figures should more honestly represent what the company may be able to do for you.
Some closures of debt settlement firms: Some debt settlement firms may no longer have a workable business model without upfront fees from customers, which could mean closures in debt settlement firms.
“Innovative” trickery: And, finally, as with any implementation of new rules, some debt settlers may try to find ways around the new requirements. As always, you are still responsible for making sure your money and financial health is in good hands.
Debt Settlement without a Firm
If you’re struggling with debt and are trying to figure out which debt-relief option might work best for you (bankruptcy, debt settlement, credit counseling, etc.), remember that you can contact your creditors without any help from a third party. By exploring all of these options, you may find the debt-relief option that works best for you.
Bankruptcy protection is often cited as a crucial part of the fabric of American capitalism – with the safety net of bankruptcy available, entrepreneurs and risk-takers can proceed without worrying that following their dreams will have devastating financial consequences.
Recognizing the important role bankruptcy plays in our economy, two bankruptcy analysts have developed a color-coded system to help consumers gauge their level of financial health and help them figure out whether they should be seriously considering a bankruptcy filing to protect their financial future.
Financial Warning Signs that You Might Need Bankruptcy
The various colors in this code, much like those in the code used by the feds to communicate the current level of threat of a terrorist attack, work like this:
Green zone (no need to file bankruptcy): If you're in this category, you have no real need for bankruptcy protection. You probably make more than you spend, pay your bills on time, have assets and insurance, have no credit card debt and save money regularly.
Blue zone (financial changes might be needed): Here, you don't quite need bankruptcy protection, but your financial habits, if continued, may lead you to a place where you will. People in this zone may be worried about losing their job, have trouble paying bills in full each month, have credit card debt and secured debt, and may not by able to save money regularly.
Yellow zone (bankruptcy is an option): At this level, you need to evaluate your situation and consider your debt-relief options, bankruptcy being chief among them. People in the yellow zone are often experiencing some financially difficult life change (like divorce, injury or layoff), have begun to miss payments on both unsecured and secured debts, have few or no assets, are getting calls from debt collectors and may not have insurance. If you're in the yellow zone, you need to take some sort of action, whether that's negotiating with your creditors or consulting with a bankruptcy lawyer.
Orange zone (bankruptcy should be seriously considered): Here, your debt is getting out of control. People in the orange zone tend to be delinquent (more than 60 days late) on at least one bill, use one credit card to pay off another, owe serious tax or medical debts but cannot afford them, have been out of work more than three months and may have had creditors initiate lawsuits against them. While there are still alternatives to bankruptcy available at this stage, it's generally a good idea to consult with a lawyer to see what the best option for your finances and legal status is.
Red zone (file for bankruptcy right away): At this stage, you're no longer in a position to negotiate and need the protection of the court to prevent having your assets repossessed, your wages garnished, your home foreclosed or similar actions taken. Many people in this phase are unemployed and may have run out of unemployment benefits. Under these circumstances, filing for bankruptcy is often helpful because it may halt all collection action.
College students and recent graduates are facing a particularly difficult financial landscape as they attempt to move from the classroom to the workplace: college tuition is more expensive than ever, meaning that most students rely at least in part on loans to cover their fees.
But, with the economy still sluggish, finding a job (and particularly a job that will allow them to cover their loans) is often a difficult feat.
And the scary truth is that student loans are very difficult to discharge in a bankruptcy filing. Here’s a look at what you can expect if you’re struggling to repay educational debt—and what your options might be.
Student Loans in Bankruptcy
In most bankruptcy cases, student loans constitute non-dischargeable debt, meaning that the bankruptcy court cannot legally forgive any money you owe. The exception to this rule is that if a filer can prove “undue hardship,” she might have her loans forgiven.
In order to demonstrate that paying back your student loans would cause you “undue hardship,” you must address the following:
Standard of living: You need to show the bankruptcy court that, if you made payments on your student loans, you would be forced to live below a minimum standard of living. This may vary depending on where you live, so be sure to consult with a bankruptcy lawyer to determine whether you might meet this criterion.
Duration of situation: You also need to prove that your current living circumstances (such as expenses and income) are likely to continue throughout the duration of your loans’ repayment period. In other words, you need to show that you’re not only poor now, but you’re likely to remain so for as long as you’d be making student loan payments.
Effort of repayment: Finally, you have to demonstrate that you’ve honestly attempted to repay your loans but have found yourself unable to continue doing so while maintaining reasonable living standards.
Clearly, these criteria are not easy to meet—and it’s likely you might not even want to meet them. After all, none of us want to think we’ll be having the same difficulty finding work ten years from now that we’re currently having.
Dealing with Student Debt
If you don’t think you’re likely to have your student debts discharged by a bankruptcy court, you may want to consider these options for repayment.
Filing for bankruptcy: No, that’s not a typo. If you’re stretched too thin by a variety of debts, filing for bankruptcy may allow you to discharge other debts (like those from credit cards) so you can funnel money to debts you have to repay.
Applying for forbearance: Most student lenders offer graduates periods of forbearance, in which they’re not required to make payments on their loans. If you expect to be employed (or be earning more money) in the near future, this option may give you some breathing room.
Negotiating: Finally, consider contacting your lender, explaining your situation and asking for altered loan terms that would allow you to make smaller monthly payments so you could stay on target.
If you’ve recently found yourself buried under a pile of debt, you’ve probably spent some time researching ways to dig yourself out. Most likely, filing for personal bankruptcy did not sound like the most appealing choice. However, like visiting the dentist or and eating spinach, filing for bankruptcy can actually be quite good for your health, financially.
Like most tools that aid in personal finance recovery, the more you learn about bankruptcy, the more comfortable you may feel wielding it as a debt-reducing tool.
The following are some important things to know about personal bankruptcy:
What Will the Neighbors Say?
While many people think bankruptcy carries some stigma, the fact is that more than 1.5 million Americans filed for bankruptcy last year. And these people stretched across all social strata—from doctors and corporate executives to plumbers and house cleaners.
In addition, according to the Orlando Sentinel, a recent Harvard University study revealed that most bankruptcy filers wound up in court as a result of job loss, divorce, or medical issues. So, if one of these problems led to your financial malaise, know that you are not alone.
Where Do I Start?
First, figure out if you can stay out of bankruptcy by reducing your household expenses, or adjusting the payment plans on the debts you owe. If such tactics dramatically reduce your debts, you may be able to navigate the road to financial recovery yourself.
However, if these strategies prove ineffective, consider filing for personal bankruptcy. See if it makes more sense to file for Chapter 7 or Chapter 13 bankruptcy. Each of these options comes with its own advantages. For example, Chapter 7 bankruptcy can help discharge your debts more quickly, while Chapter 13 may allow you to keep more of your assets.
Of course, both options are pretty complex, especially after the legislative overhaul of bankruptcy law in 2005. It is possible to file for bankruptcy yourself, but seeking legal advice from an experienced bankruptcy attorney is often worth the investment.
Caveat Debtor
Reportedly, some companies promising immediate debt relief peddle misleading, or outright wrong, information. Be wary of promises to drastically reduce your debt or painlessly repair your credit, especially if these promises come attached with large up-front fees.
Also, beware of pressure tactics from your creditors. One tall tale occasionally given by debt collectors is that the 2005 reforms banned bankruptcy altogether. This couldn’t be further from the truth. Personal bankruptcy is alive and well, and over a million Americans use bankruptcy every year to reduce their debt load.
What leads people to file bankruptcy? A recent article from the Idaho State Journal offers an interesting peek into the mind of a U.S. bankruptcy judge and a refreshing reminder about the causes of bankruptcy.
Why Americans File for Bankruptcy
U.S. Bankruptcy Court Judge Jim Pappas explained how bankruptcy protection is one of pillars of the U.S. economic system: the promise of a fresh financial start for those who get into more debt than they can handle encourages the sort of entrepreneurship that makes America what it is.
Pappas went on to identify three factors that he has reportedly found contribute to the majority of bankruptcy cases he sees in his court:
Medical bills: Medical catastrophes can bankrupt even those who have medical insurance—having too little insurance can be just as problematic as having none at all when astronomical medical expenses enter the picture. Plus, lost work hours and/or the lost ability to perform many jobs leaves some people without a chance to recover from a financial setback.
Job loss: As millions of Americans have learned in the last year, getting laid off or having your hours or pay cut can seriously strain your finances. For people who don’t have a tidy emergency fund in place, job loss often throws finances into turmoil—without steady income, people risk defaulting on credit cards, home loans, car payments and student loans. This can lead to stress, foreclosure and repossession—for many, bankruptcy is the only available remedy.
Family problems: Divorce can be expensive, and single parenting isn’t much easier. Apparently, the majority of single filers Judge Pappas sees are women, often strained financially by their obligation as the primary caretaker for their children.
Why the Bankruptcy System Works
One point mentioned in the article bears repeating: the judge mentions that bankruptcy still has a bad reputation in this country as being for “deadbeats” and people who are interested in “gaming the system.”
But, according to anecdotal evidence and statistics from the U.S. government, nothing could be further from the truth. In fact, only an estimated one to three percent of bankruptcy filings are fraudulent—meaning that between 97 and 99 percent of bankruptcy filers are truly in need of financial protection.
If you’re struggling financially—whether because of one of the factors mentioned above of for another reason—you may want to consider whether filing bankruptcy is the right choice for you. Often, taking action earlier rather than later gives filers the most options for financial recovery.
The recession has affected us all, but who's been hit the hardest?
Last year there were nearly 1.5 million bankruptcy filings--learn about the people behind those numbers. Check out our latest You Tube video and please share it with your friends.
