Bankruptcy filings rose 17 percent over a year ago; once-available cushions of credit and home equity have vanished
Bankruptcy filings continued their upward march, nearing 379,000 for the first quarter of 2010, an increase of 17 percent from the first three months of last year.
David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, headquartered in Fairfax, Va., says he’s not surprised by the increase in filings. “We see more and more people seeking help, and fewer we can actually help” in credit counseling because they are far too deeply in debt.
In most cases, people have waited too long to turn to credit counselors for help, often hoping to get some relief through federal mortgage assistance programs. “That has not been forthcoming, unfortunately,” Jones says. As a result, “many people have had false hopes over the past six to seven months.”
Filing pace quickens
Instead, there were more than 6,200 bankruptcy filings per day in February and nearly 6,900 filings per day in March, according to data from AACER (Automated Access to Court Electronic Records). That compares to less than 5,500 per day in February 2009 and fewer than 6,000 per day in March of last year.
Robert Lawless, a bankruptcy expert and professor of law at the University of Illinois in Urbana-Champaign, says filings typically rise in February and March as people use their tax refunds to cover bankruptcy filing fees, which can run $1,000 or more.
Nevada, Tennessee lead in filing
Those states also held the top five places during the first quarter of 2009, but the number of people filing per thousand had ticked upward in the new year in all but Tennessee.
In sheer volume, California continued to lead the nation in 2010, with more than 59,000 filings for the first quarter of the year, followed by Florida, with nearly 26,000 filings. Illinois also topped the 20,000 mark. In California, filings soared by more than 40 percent over the previous year, while in Florida the number jumped by more than one-quarter.
Jones says that many of those who come in for credit counseling don’t want to file for bankruptcy but have no other option left because they’re so far in the hole. Problems tend to be worst in states with a high number of foreclosures or high unemployment rates.
‘A long way to go’
Even with the recent job growth, “we have a long way to go before we are out of the problem we are in,” Jones says.
In 2009, more than 1.4 million personal bankruptcy petitions were filed, according to AACER, up by nearly one-third over 2008.
Jones expects this year’s bankruptcy filings to reach at least 1.5 million, which was the annual average before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was approved.
|THE RISE, FALL AND RISE|
OF BANKRUPTCY FILINGS
|A 2005 federal law restricting bankruptcies had a large immediate impact, pushing filings way down after its passage. But despite it making filing more expensive and difficult, bankruptcies are nearly back to the level they were before the law’s passage. See an interactive state-by-state U.S. bankruptcy time line.|
The act — which was based on the assumption that consumers were abusing previous bankruptcy regulations — has meant higher filing fees, a means test for eligibility, counseling programs and an eight-year moratorium before filing again.
Consumers rushed to file for bankruptcy before the changes took effect, pushing bankruptcy filings to about 2 million in 2005. The numbers plunged afterward, but they’ve since seen a steady rise. Lawless says that as the impact of the 2005 law works its way out of the system, filings have resumed their “inexorable climb back to the natural filing rate.”
Lawless predicts the number of bankruptcy filings to continue to rise, but at a slower pace than in recent years.
The biggest driver of bankruptcy filings is the amount of credit that consumers have outstanding. “What’s pushing the rate up now is the unavailability of consumer credit,” he says.
Banks are reluctant to make loans, home equity has dried up as a source of funds and credit card limits have been cut or the cards have been withdrawn completely. Because credit has tightened and the amount of savings has risen in recent months, Lawless says that “in the long run, it should decrease the bankruptcy rate.”