Total of 158,000 Personal Bankruptcy Filings in March
According to the New York Times, there were a total of 158,000 personal bankruptcy filings in the United States in March of 2010. This means that federal courts processed an average of 6,900 personal bankruptcy filings per day last month.
These numbers are dramatically higher compared to March of 2009 (+19%) and February of 2010 (+35%). The 158,000 personal bankruptcy filings also represents the highest such number since the federal bankruptcy laws were tightened in October of 2005. The previous record - 133,000 personal bankruptcy filings in October of 2009.
Some people have found the increasing number of personal bankruptcy filings to be surprising, especially given the apparent recovery in the economy over the past few months.
However, as Mike Bickford, president of the Automated Access to Court Electronic Records points out (quoted in linked article), personal bankruptcy fillings normally surge 6-18 months after an economic contraction takes place. People lose jobs, slowly draw down on their resources and then eventually have to file for bankruptcy.
A few more reasons why personal bankruptcy filings may have been so high in March, according to the article:
1. People are less interested in keeping their homes, which has resulted in a surge of Chapter 7 filings compared to Chapter 13 filings. In a Chapter 13 filing, filers can repay a portion of their debts and still keep their homes. Many people are currently underwater on their mortgages, which has resulted in a Chapter 13 filing being a less appealing option.
2. Many people are filing for bankruptcy now so that they can use their personal tax refunds to pay for their bankruptcy lawyer fees.
With tight credit markets, a stagnant real estate market and continued high jobless rates, you can probably safely assume that personal bankruptcy filings will remain high over the coming years. You can probably also assume that Chapter 7 bankruptcy filings will continue to spike as people continue to choose to just walk away from their homes.
Source: New York Times - Sharp Increase in March in Personal Bankruptcies
Filed under: The Economic Meltdown