Rise in Bankruptcy Filings Due to Unemployment and Housing Market

There were a total of 1.41 million bankruptcy filings in 2009, a 32% increase in personal filings from the previous year. It marked the highest number of filings since the bankruptcy laws were changed in 2005, making it more difficult to file.

The economy has pushed more and more Americans into economic distress with a declining housing market and an unemployment rate of over 10%. Many households have been faced with job loss and mortgage troubles, leaving them no other recourse than to file bankruptcy.

According to Samuel J. Gerdano, executive director of the American Bankruptcy Institute, “There’s a close relationship between high levels of household debt, including mortgage debt, and bankruptcy filings.” “That…has been exacerbated by the bursting of the housing bubble.”

States Hit the Hardest

Western states such as California, Arizona and Nevada, where housing prices once soared and plummeted over the last 10 years, bankruptcy filings were twice the national average.  According to the Mortgage Bankers Association, nearly 6.2% of mortgages in Arizona and 9.4% of mortgages in Nevada were in foreclosure by the end of the third quarter of 2009.

Bankruptcy Types

There are five chapters of United States bankruptcy law, which apply to different situations:

• Chapter 7 – Eliminates many debts such as credit card and medical bills not secured by collateral, in exchange for the liquidation of assets (not protected by federal or state exemption laws). Chapter 7 filings were up more than 42% as of November.
• Chapter 13 – Debt reorganization plan used primarily by individuals who want to keep their assets such as their homes and cars. It allows them to become current on delinquent loans and repay unsecured debts according to their means. Chapter 13 filings were up 12% and accounted for less than a third of overall filings through November.
• Chapter 11 – Debt reorganization and pay-back plan used primarily by businesses. Consumers with too much debt to qualify for Chapter 13 may opt for Chapter 11.
• Chapter 12 – Similar to chapter 13, designed for family farmers and fishermen.
• Chapter 15 – Added along with the bankruptcy changes in 2005 for governing business bankruptcy cases involving parties in more than one country.

Before the housing market tanked, homeowners could usually take care of their debts by either selling their home or tapping into their home equity by refinancing.  Nowadays, many homeowners in major debt feel they must file bankruptcy if they ever want to be financially solvent again.

Real Estate and Finance Expert – Charlotte NC

Leigh Brown is the leading real estate,  finance and foreclosure expert of Charlotte, NC.  If you are in the market to buy real estate in Charlotte, NC or sell your existing home, you need Leigh Brown on your team!

You can reach Leigh by filling out her online contact form or by calling her at (704) 688-5005 or toll free at (866) 440-7136.

Sources:
Wall Street Journal
MSN Money  
Fox Business