Personal Bankruptcy Filings Soar

Written By: Lisa Matthys

Consumer bankruptcies exceeded one million for the first nine months of this year for an all time high since the system was overhauled in 2005. Using data from the National Bankruptcy Research Center, the American Bankruptcy Institute determined that as of Sept 30. personal bankruptcies totaled 1,046,449, whereas in 2008 there were 773,810 within the same time period. September's filings increased 41% from last year.

The 2005 reform was intended to make it more difficult for Americans to simply relieve their debts by filing for bankruptcy. Many attribute bankruptcies to health care and job loss. Some believe personal bankruptcies are caused by over-consumption in which households underestimate their personal disposable income and end up spending more than what they budget for. The new law imposed by Congress forces more people to file under Chapter 13, in which consumers are put on a repayment plan of up to five years. Any debts not addressed by the repayment plan do not have to be paid. Still, even with the new law, about 71% of consumers who filed for bankruptcy within the first nine months of this year filed for Chapter 7. With a tough economy, the American Bankruptcy Institute expects that personal bankruptcies will exceed 1.4 million by the end of the year.

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