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Consumer Bankruptcy Filings Reach Five-Year High

According to a research by the American Bankruptcy Institute, consumer bankruptcy filings for the first half of 2010 were considerably higher than any six-month period since 2005.

The Wall Street Journal recently highlighted some of the key findings of the Institute’s study:

• Raw figures: During the first six months of 2010, consumer bankruptcy filings rose to 770, 117, which represents a 14 percent increase over filings made in the same period last year.
• Rise despite legislation: This figure for 2010 represents the highest number of bankruptcy filings since the Bankruptcy Abuse Prevention and Consumer Act was passed five years ago.
• More to come: The American Bankruptcy Institute anticipates at least 1.6 million bankruptcy filings before the end of the year.
• Debt in the desert: Sources indicate that the average national filing rate was 6,800 filings per million households. Nevada had more than double the national filing rate, coming in at 15,000 filings per million households. A partial explanation for this high figure is that Nevada also has the highest unemployment rate in the country.
• Bucking the trend: Places as diverse as Washington, D.C., Alaska, and South Carolina had the lowest filing rates, each falling below 40 percent of the national average.

While the last six months as a whole showed rising bankruptcy filings, there are also contradictory signs that bankruptcy filings may be on the decline.

In June, bankruptcy filings totaled 127,000, which is a seven percent drop from the number of filings in May. Moreover, total filings dropped in June for the third consecutive month.

Of course, this could be a blip in the large scheme of things, according to the National Bankruptcy Center. While June filings were down from this May, they still represented an 8 percent increase in filings compared to June of 2009.

What Caused the Rise in Filings?

According to Bloomberg Businessweek, the rise in bankruptcy filings is largely attributable to the combination of rising consumer debt and low savings rates.

As consumers spend more and save less, the potential for crippling debt rises significantly. Moreover, if consumers do start spending less, this may have a negative impact on investments in business, another key factor in economic recovery.

Poor consumer spending habits are further exacerbated by the shaky employment situation. Sources indicate that the employment rate was further affected by the loss of 225,000 temporary workers who had helped conduct the 2010 census.

Additional Resources

If you might be one of the expected 1.6 million bankruptcy filers this year, consider contacting a local attorney to help you with the bankruptcy process.

Posted in Bankruptcy Filings, Bankruptcy News and Events, Bankruptcy Statistics, New Bankruptcy Law | Comments Off

BAPCPA at 4 Years – Has It Solved Anything?

I have been representing debtors in bankruptcy cases filed in the Northern District of Georgia for over 20 years. Until the law changed in 2005, filing bankruptcy was a fairly straightforward process – often I would meet with a client, decide whether to file and select Chapter 7 or Chapter 13, collect information about creditors, develop a budget, then file that day.

Attorney's fees and filing fees in those days were relatively low and relatively hassle free. Most Chapter 7 cases processed through to discharge, and Chapter 13 cases worked as long as the debtor remained employed and committed to making his case work.

Fast forward to October, 2005 – the time that the BAPCPA amendment to the Bankruptcy Code went into effect. The system became significantly more complicated. Clients were expected to gather page after page of documents, lawyers were charged with performing extensive budget calculations (the median income and means test).

Fees went up because both the attorney's liability and the amount of work required increased greatly. And what is the end result? Many people with limited income and no hope of paying it back are filing Chapter 7. Others who would have fit into Chapter 7 sometimes do not qualify immediately and end up having to delay their filing for a few months. Folks with some capacity to pay end up in Chapter 13, but trustees are more demanding and Chapter 13 plans that would have worked under the old law do not always work now.

Honest, hardworking men and women have to jump through hoops and pay a lot more money. In my career I can count on the fingers of one hand the number of clients or potential clients who I felt were dishonest. Those with the goal of gaming the system are not deterred. If the purpose of the BAPCPA amendments were to ferret out fraudsters, it has been a complete waste of time.

Another unintended consequence of the BAPCPA laws – deserving debtors do not seek the relief to which they are entitled because they get frustrated with all the paperwork required. Many of these folks remain in financial limbo – unable to save or psychologically move forward because of crushing debt. In a macro-economic sense I wonder if the country is better off with these folks living in financial purgatory rather than moving on with a fresh start.

My colleague, South Carolina bankruptcy lawyer Russ DeMott, and I were chatting about this tendency of deserving debtors to give up or delay filing because of the burden that the Bankruptcy Code places on debtors in terms of document production, costly credit counseling that offers marginal benefit and record keeping. Russ calls this syndrome "financial repression" and he has written a compelling and thoughful article about this problem.  Russ has given me permission to republish his article on this blog, which will be the next post published here.  You should also check out Russ' Charleston bankruptcy blog. Your feedback is welcomed.

Posted in BAPCPA, Chapter 13, Chapter 7, Credit Counseling, General consumer bankruptcy info, Georgia Bankruptcy, New Bankruptcy Law | Comments Off