Thursday, October 22, 2009

Personal Bankruptcy on its highest Level since 2005

Written by Stefanie Marty

In the first nine months of this year 1,046,449 individuals filed for personal bankruptcy. This represents a 35% increase from the previous year, when 773,810 filed for personal bankruptcy during the same time period. At the same time consumer bankruptcy is on its highest point since 2005 when the system was overhauled. In 2005 and before the implementation of the new system the amount of personal bankruptcies in the first nine months of the year was 1.35 millions.

The new implemented law makes it harder and more expensive to file bankruptcy. Academics and lawyers believe that by the new law many borrowers have the wrong impression that they could no longer file. This unavailability of bankruptcy makes the current economic crisis even worse.

Typical reasons for bankruptcy are job loss, medical bills, and divorce. During the tough economic crisis there are more factors present that make the number of bankruptcy filings go up. Some of them are the rising unemployment, lower payments, fewer people with health insurance, and the mortgage and foreclosure crisis, but the most important one is probably the credit tightening. Due to the fewer lending by banks, it has gotten though and in some cases even impossible for consumers to get credits.

Robert M. Lawless, a professor at the University of Illinois College of Law, said: “With the consumer credit tightening and the economy in a nosedive, this pop could just be the beginning of a long-term rise in the bankruptcy filing rate to levels that are even higher than we had before the 2005 bankruptcy law.”

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