Soaring rate of bankruptcies expected to continue in 2010
by David M. Dickson of The Washington Times- Friday, January 8, 2010
Not only did U.S. consumer bankruptcies jump by nearly a third in 2009, but bankruptcy analysts expect matters to worsen again in 2010 as the deepest economic downturn since the Great Depression continues to work its way through American households.
Consumer bankruptcy filings exceeded 1.4 million last year compared with 1.06 million in 2008, an increase of 32 percent, according to the American Bankruptcy Institute (ABI), a nonpartisan, independent research and education organization. The ABI relied on data compiled by the National Bankruptcy Research Center.
“A combination of economic stress, including high debt loads, rising unemployment and unsustainable mortgage burdens, left many consumers with little choice but to seek the financial relief of bankruptcy,” ABI Executive Director Samuel J. Gerdano said.
“The future is more of the same,” he said.
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Overburdened by huge mortgages, plunging home values, unsustainable credit card debts, tightening credit conditions and soaring joblessness, families have been carrying an “overhang of consumer debt” for a decade or so as a result of a low savings rate and overconsumption.
The resulting “debt bubble,” Mr. Gerdano said, led to a soaring bankruptcy rate.
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“People are getting laid off and losing their health insurance. Others who are carrying big debts can’t get home equity loans or refinance their mortgages. It has now all come together. People on Main Street are really hurting, and that pain is not going away, despite current economic indicators” that suggest the recession has ended, Ms. Thompson said.
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“The vast majority of people file for bankruptcy as a last resort,” she said. “They try to pay their debts, including the 30 percent credit card interest rates, until they can pay no more.”
Ms. Resop is a bankruptcy lawyer specializing in Chapter 7 cases in Madison and Janesville, Wis., where a General Motors Co. plant shut down a year ago. Her business is up 40 percent to 50 percent over the past six months.
“I see a lot more middle-aged people and households that own real estate filing for bankruptcy today,” Ms. Resop said. “Many of these people, who are in their 50s and 60s, got second and third mortgages to keep up with other bills over the years.” Now, they are being crushed by the collapse of housing equity.
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The range of bankruptcy filers Ms. Resop represents illustrates the extent to which the housing and mortgage crises have decimated the lives of her clients.
“Developers, architects and real estate investors, who made millions of dollars during the booming years, now have zero incomes, and they can’t liquidate their assets because their houses are worth so much less than their mortgages,” she said.
The housing collapse also has filtered down to the working- and middle-class households. Ms. Resop also is representing “landscapers, concrete guys, log-home builders, plumbers – the list goes on. They’ve all maxed out their lines of credit.”
The foreseeable future is not looking any brighter, analysts say.
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