Bankruptcies on the Rise…
By Heather Faucher | Posted on July 22, 2009 | Filed Under Bankruptcy
Both consumer and commercial bankruptcy filings are racing upward again and are expected to reach a stunning 1.5 million this year, according to a report from Automated Access to Court Electronic Records (AACER). While that number may still be below the record of 2 million filings hit in 2005, it’s still a sharp increase over last year’s 1.1 million filings.
A serious bankruptcy reform measure was signed into law in 2005, which seemed to stem the tide of bankruptcy filings over the next year. The law was intended to curb bankruptcy abuse and make it harder for people to simply erase their debts. The plummeting economy is swinging the bankruptcy pendulum back up, however. Rising job losses, tighter credit, dwindling 401(k) accounts, and dwindling paychecks means consumers are struggling even more than ever to make ends meet and keep creditors at bay.
In the past, many Americans used credit cards to keep their heads above water when hurting financially. However, the shaky economy means many creditors have to tighten their own belts, one possible reason bankruptcy filings are once more on the rise. In May, the number of bankruptcy filings reached 6,020 a day, up from 5,854 in April, AACER says.
And it’s not just consumer bankruptcies that are skyrocketing. The commercial bankruptcy rate is soaring as well, thanks in no small part to decreasing sales and tight credit markets. Commercial filings reached 376 a day in May 2009, up from 255 a year ago. This wave of corporate bankruptcies will cause a secondary wave in consumer filings, according to John Pottow, University of Michigan bankruptcy law professor. The recent bankruptcy filings of Chrysler and General Motors, along with plant closings and job losses, will spark even more consumer bankruptcy filings, Pottow says.
Of course, for many, bankruptcy is a godsend, giving them the chance to get some financial breathing room long enough for them to get back on their feet. And there’s no shame in that–it’s exactly what bankruptcy was designed for.
Think you might have to file bankruptcy? You can compare online options here.
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Tags: Bankruptcy, bankruptcy reform, economy, filing bankruptcy
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