January 4, 2010
The number of Americans filing for personal bankruptcy topped 1.5 million last year, as high long-term jobless rates and depressed home prices drove more households to seek court protection.
Personal bankruptcies rose to 1.53 million, up 9% from 2009, the highest level since a revamp of the law took effect in 2005, according to the American Bankruptcy Institute, an association of attorneys and other bankruptcy professionals, and the National Bankruptcy Research Center.
A handful of Southwestern states accounted for much of the uptick in filings by households buckling under debt. "There are two groups of people who have had really high filings during the [financial] crisis—the Pacific Southwest and the Southeast," said Ronald Mann, a Columbia University law professor.
Conditions have improved in the Southeast, with filings dropping last year in Tennessee, South Carolina and Alabama. But the Southwest continues to struggle. In California, bankruptcies were up 25% from a year earlier. In Arizona, they rose nearly 24%.
Ed Soapes, 53 years old, of Corona, Calif., filed for bankruptcy protection in September 2010, after losing his job as an estimator for a construction company in February. He said he now relied on his and a daughter's disability benefits to pay the bills in a household that also includes two other children—one in college, one unemployed—and his mother. Mr. Soapes's filing listed more than $150,000 in debts, including a mortgage that he promised in the filing to continue to pay.
"It was just a losing battle," Mr. Soapes said. "When I finally said enough's enough, I was getting 15 to 18 calls a day" from creditors. He said it was his second trip to bankruptcy court, the first coming in the 1990s when a business he owned went under. "I'm not even worried about my credit anymore," Mr. Soapes said. "I've got a house full of people that depend on me."
This year could bring a decline in bankruptcies, as the economy improves and consumers borrow less. "Over the course of the year, I think bankruptcies will be going down," said Robert Lawless, a University of Illinois law professor. "The reason for that is borrowing's down…there's less of a reason for people to take the legal step of filing for bankruptcy."
The 2005 revision of the bankruptcy statute was designed to make it more difficult for consumers to shed their debts. It aimed to steer more debtors into Chapter 13, where debtors work out a repayment plan, instead of Chapter 7, where filers forfeit their assets and their debts are forgiven. But only about a third of debtors file under Chapter 13.
The bankruptcy law was passed prior to the housing slump and deep recession that pushed unemployment to nearly 10%. Combined with tightened access to consumer credit, which tends to spur a rise in bankruptcies, the downturn has pushed filings to levels higher than backers of the law anticipated.
In all, some four million consumer bankruptcy filings have been recorded in the past three years. Surveys of debtors by the nonprofit Institute for Financial Literacy indicate that while most earn less than $30,000 and lack college degrees, a growing minority are middle-class families with incomes above $60,000 or college degrees.
Tim Zaneske, 44, who lost his job in June 2009 training civil engineers to use specialized software, filed for Chapter 13 bankruptcy in October 2009. He said he aimed to get rid of some debts so he could continue to pay the mortgage on his Flushing, Mich., home, though his house is worth less than the value of the mortgage loan.
Mr. Zaneske said his family now lived on his wife's income and his unemployment benefits to pay the bills and to keep up with the monthly payment to creditors specified in his bankruptcy agreement. Employers from out of state have contacted Mr. Zaneske to see if he would be willing to move, but between his mortgage and bankruptcy, it's not an option, he said.
"I'm really kind of tied to the state," he said. "I can't buy a house anywhere, because nobody's going to want to give me a mortgage."
The number of Americans filing for personal bankruptcy topped 1.5 million last year, as high long-term jobless rates and depressed home prices drove more households to seek court protection.
Personal bankruptcies rose to 1.53 million, up 9% from 2009, the highest level since a revamp of the law took effect in 2005, according to the American Bankruptcy Institute, an association of attorneys and other bankruptcy professionals, and the National Bankruptcy Research Center.
A handful of Southwestern states accounted for much of the uptick in filings by households buckling under debt. "There are two groups of people who have had really high filings during the [financial] crisis—the Pacific Southwest and the Southeast," said Ronald Mann, a Columbia University law professor.
Conditions have improved in the Southeast, with filings dropping last year in Tennessee, South Carolina and Alabama. But the Southwest continues to struggle. In California, bankruptcies were up 25% from a year earlier. In Arizona, they rose nearly 24%.
Ed Soapes, 53 years old, of Corona, Calif., filed for bankruptcy protection in September 2010, after losing his job as an estimator for a construction company in February. He said he now relied on his and a daughter's disability benefits to pay the bills in a household that also includes two other children—one in college, one unemployed—and his mother. Mr. Soapes's filing listed more than $150,000 in debts, including a mortgage that he promised in the filing to continue to pay.
"It was just a losing battle," Mr. Soapes said. "When I finally said enough's enough, I was getting 15 to 18 calls a day" from creditors. He said it was his second trip to bankruptcy court, the first coming in the 1990s when a business he owned went under. "I'm not even worried about my credit anymore," Mr. Soapes said. "I've got a house full of people that depend on me."
This year could bring a decline in bankruptcies, as the economy improves and consumers borrow less. "Over the course of the year, I think bankruptcies will be going down," said Robert Lawless, a University of Illinois law professor. "The reason for that is borrowing's down…there's less of a reason for people to take the legal step of filing for bankruptcy."
The 2005 revision of the bankruptcy statute was designed to make it more difficult for consumers to shed their debts. It aimed to steer more debtors into Chapter 13, where debtors work out a repayment plan, instead of Chapter 7, where filers forfeit their assets and their debts are forgiven. But only about a third of debtors file under Chapter 13.
The bankruptcy law was passed prior to the housing slump and deep recession that pushed unemployment to nearly 10%. Combined with tightened access to consumer credit, which tends to spur a rise in bankruptcies, the downturn has pushed filings to levels higher than backers of the law anticipated.
In all, some four million consumer bankruptcy filings have been recorded in the past three years. Surveys of debtors by the nonprofit Institute for Financial Literacy indicate that while most earn less than $30,000 and lack college degrees, a growing minority are middle-class families with incomes above $60,000 or college degrees.
Tim Zaneske, 44, who lost his job in June 2009 training civil engineers to use specialized software, filed for Chapter 13 bankruptcy in October 2009. He said he aimed to get rid of some debts so he could continue to pay the mortgage on his Flushing, Mich., home, though his house is worth less than the value of the mortgage loan.
Mr. Zaneske said his family now lived on his wife's income and his unemployment benefits to pay the bills and to keep up with the monthly payment to creditors specified in his bankruptcy agreement. Employers from out of state have contacted Mr. Zaneske to see if he would be willing to move, but between his mortgage and bankruptcy, it's not an option, he said.
"I'm really kind of tied to the state," he said. "I can't buy a house anywhere, because nobody's going to want to give me a mortgage."
Closed November 2010