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American Bankruptcy Institute Report Says Consumer Bankruptcies Still Rising

April 24, 2009

Consumer bankruptcies were 29% higher in February of 2009 than they were in the same month in 2008, reported March 4. The numbers come from a study by the American Bankruptcy Institute, a nonpartisan group. The February rate of bankruptcies also surpassed the January rate by 11%, a sharp rise from the previous month. The ABI said it estimates about 1.4 million bankruptcy filings this year, which would be an increase over 2008's total of 1.06 million filings. And that projection could be even higher, a spokesman said, if Congress passes bankruptcy reform laws widely expected to increase consumer bankruptcies.

Interestingly, the report showed that Chapter 13 filings actually went down slightly between January and February, decreasing by 2.6%. Because the overall rate of bankruptcies was still high, that must mean an even greater spike in filings for the other major type of consumer bankruptcy, Chapter 7. Chapter 7 is a "liquidation" bankruptcy, in which debtors sell off all their assets under court supervision and have the remainder erased. By contrast, Chapter 13 is a "reorganization" requiring debtors to make payment plans with the court and stick to them over three to five years.

This is remarkable to La Habra bankruptcy lawyers like us because recent bankruptcy reform efforts encourage people to file for Chapter 13. The 2005 federal bankruptcy reform law bars people with higher incomes from filing for Chapter 7 unless their expenses are high, effectively pushing more filers into Chapter 13. The goal was to stop abuses by people who could afford to pay some of their debts -- but the effect, according to bankruptcy law experts, was to force people into payment plans they couldn't afford. The upswing in Chapter 7 filings suggests that recent bankruptcy filers have below-average incomes, above-average expenses, very high amounts of unsecured debt or some combination of those problems.

As Yorba Linda bankruptcy attorneys, we know how desperate our clients feel when they're in these situations. But there is an upside: Qualifying for Chapter 7 means you can finish your bankruptcy much more quickly than a Chapter 13 filer could. At Howard Law LLP, we start every bankruptcy case by helping our clients figure out which type of bankruptcy -- if any -- is right for their situations. If it's appropriate, our Stanton debt settlement lawyers may be able to help clients control their debt without taking the drastic step of bankruptcy.

If you feel like you're drowning in debt and you're ready to explore your legal options, Howard Law can help. To set up a free, confidential consultation on your case, please contact us online or call us toll-free at 1-800-872-5925.