The number of bankruptcies filed by Americans topped 1.53 million last year as a result of long-term high unemployment rates and depressed home prices. Many people were unable to successfully make ends meet and therefore, sought court protection to clean their slates.
Bankruptcies Jumped 9 Percent from 2009
According to data released by the American Bankruptcy Institute, an association of attorneys and other bankruptcy professionals, along with the National Bankruptcy Research Center, the number of bankruptcies in 2010 represented a 9 percent jump from 2009.
This is the highest level seen since a revamp of the bankruptcy law took effect in 2005, which made it more difficult for consumers to shed their debt. Instead of debtors filing Chapter 7, which allows them to forfeit their assets, the law made Chapter 13 much more likely, in which a repayment plan is worked out with creditors.
According to the report, about two-thirds of filers have still qualified for Chapter 7 because so many were heavily affected by long-term joblessness and underwater mortgages.
More Filings in the Southwest
The report found specific areas suffered more than others and actually contributed to the significant increase in bankruptcies across the nation. In particular, the Southwest region of the United States had considerably more bankruptcy filings than the other areas.
California, in particular, had a high number of filings. Bankruptcies in the state were up 25 percent from a year earlier while in Arizona, filings rose nearly 24 percent from 2009.
Bankruptcy Likely to Drop in 2011
The good news is experts predict we’ll see a drop in bankruptcy filings this year thanks to economic improvements, an increase in hiring, improved tax breaks and reduced borrowing (fewer loans gives consumers eliminates the likelihood of default).
However, with an expected increase in foreclosures and continued drops in home prices in 2011, it’s still uncertain whether Americans will be seriously struggling with less debt this coming year.
I’m not too sure that bankruptcies will start declining this year. If anything, I see the greater economy going into a second recession, the stock market getting trounced due to fear and personal bankruptcies staying at the same level or higher.
The Fed only has so many bullets to use, and right now we’re seeing commodities rise while the stock market and housing declines.
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Briana,
Congrats for being selected as Editor’s Choice for the Carnival of Personal Finance.
I hope the bankruptcy rate starts dropping again. There are way too many people losing everything right now. The good news is that a lot of people are starting to save and avoid debt. Let’s hope it continues.
[...] Briana Ford from Go Banking Rates presents Over 1.5 Million Americans Filed for Bankruptcy in 2010. [...]
I don’t have any predictions for 2011, but I do hope the number of bankruptcies goes down, because it’s an agonizing process.
Wringing excess debt out of the economic system is the positive function of recessions and depressions, so lets hope that it’s working. It’s good that Americans are finally getting better about paying debt down or off. It’s a slow process, but it’s happening.
I’m worried that there’s so much government debt that it will overwhelm the economy and we’ll be crushed no matter our personal balance sheets — just because we’re taxpayers.
In the long run we’d be much better just biting the bullet and balancing the federal by cutting expenditures and raising the interest rate just as Paul Volcker did through 1981.
But in the short run the pain would be high. If my paycheck depended on winning the next election, I’d want to drag the problem out too.
Rick
Land Securities Group
Sad, sad, sad…especially that of the Southwest geographic region, which is clearly a result of the housing boom and bust. You can’t buy and the top and sell at the bottom and simply hope to survive.
So sad to hear about the bankruptcies and recession, it’s not just affecting the Americans but the whole world as well. America is one of the most powerful nations and whatever problem its government has, it will always affect the whole world.
[...] Briana Ford from Go Banking Rates presents Over 1.5 Million Americans Filed for Bankruptcy in 2010. [...]