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Consumer Bankruptcy Filings Reach Post-Reform Record High in 2009

January 6, 2010

Thanks to personal experience and industry reports, our San Bernardino personal bankruptcy lawyers knew that 2009 was likely to offer a flood of new bankruptcies. According to a Jan. 6 article from the Wall Street Journal, individual bankruptcies increased by 32% last year over 2008, which means 1.41 million bankruptcies. This is the highest rate since 2005, when bankruptcies spiked just before changes to the law. The article attributed the rise to the continuing recession, high unemployment rates and the housing crisis, all of which are putting a squeeze on consumers. In fact, the article said, bankruptcy attorneys are seeing an increase in filings from people with six-figure salaries and high levels of education, many of whom were doing well financially just a few years ago.

The increase in individual bankruptcies is particularly noteworthy because it includes a large proportion of Chapter 7, or liquidation, bankruptcies. That's despite the 2005 bankruptcy reform law, which was specifically intended to cut down on Chapter 7 filings by forcing more filers into Chapter 13 reorganization bankruptcies. In Chapter 7, filers pay off some debts and the rest are forgiven, but in Chapter 13, filers must make a repayment plan and repay most or all of their debts. The reform laws included a "means test" provision intended to determine whether the filer could repay the debt -- so the rise in Chapter 7 bankruptcies means more filers are failing that test. A Columbia University law professor quoted in the article said the numbers suggest that the law is ineffective and likely was not well written.

As Orange consumer bankruptcy attorneys, we agree, although we don't enjoy being right about this. The rise in Chapter 7 bankruptcies means more and more people are dealing with debt that's disproportionate to their incomes. In this economy, we suspect that unemployment and failures of small businesses are major factors. Just as the article says, we have seen many bankruptcy clients from middle-class or upper-class backgrounds, who never believed they would end up in our office. The vast majority of these people did not spend too much money or make unwise investments. But like many Americans, their income has dramatically changed over the past 24 months or so, and they sometimes turned to credit cards, home-equity loans or other forms of debt to make it up.

Howard Law LLP helps clients solve these overwhelming financial problems, whether that means personal bankruptcy, a loan modification, debt settlement or another legal move. Our Santa Fe Springs individual bankruptcy lawyers start each case by analyzing the client's situation and deciding whether bankruptcy is truly the best option. If it is, we can help clients determine whether they should file for Chapter 7 or Chapter 13 bankruptcy, taking into account their own circumstances and priorities. We will be with clients throughout the process of a bankruptcy, including any legal filings necessary to protect them from aggressive debt collectors who don't get the message. And we take care of our clients by advising them on the secondary financial implications of a bankruptcy, such as potential tax consequences.

If you're tired of fending off calls from creditors about bills you know you can't pay back, you should call Howard Law for help. To set up a free, confidential case evaluation, please send us an email through our Web site or call 1-800-872-5925 toll-free.