Consumer Bankruptcies Up Nearly 50% From A Year Ago

The number of people filing for bankruptcy continues to increase, as bad mortgages and the rising price of [insert noun here] squeezes every last penny out of debt-laden consumers. The American Bankruptcy Institute says the number of filings was up 47.7% in April from a year ago, and up 7.1% from March ’08.

The numbers are still nowhere near where they were before 2006 (PDF), when the new bankruptcy laws caused a massive drop in filings. If the trend continues, however, we can expect the number of bankruptcies this year to bring us back up to pre-2006 numbers, says the American Bankruptcy Institute:

“The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes,” said ABI Executive Director Samuel J. Gerdano. “We expect consumer bankruptcies to top 1 million new cases this year”.

“Consumer bankruptcies up 47.7% from April 2007″ [Kansas City Star]
“April Consumer Bankruptcy Filings Increase Nearly 48 Percent Over Previous Year” [ABI]
(Photo: Getty Images)

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  1. Parting says:

    Not really surprising. Even if it’s more difficult to become bankrupt, job losses/mortgage crisis/inflation in USA are big factors in personal bankruptcy.

  2. zentec says:

    Doesn’t seem like such a hot idea to make all those credit card offers and easy refinance terms on mortgage and equity lines…for either party.

    The next 20 years will be spent paying for the illusion of prosperity of the past 10 years.

  3. @zentec:

    I don’t agree with your timelines. US banks have aggressively written down debt-backed assets; unlike Japan’s debt crisis in the early 90′s, the US appears to be taking the medicine all at once as opposed to bit by bit. The subsequent lack of liquidity has begun a destructive adjustment process, but commerce will have to rapidly adjust to the new environment.

    How fast will consumers change behavior? How about never? They’re always addicted to available debt. The key is restraining liquidity that cannot be supported, which the markets have done FOR the consumer.

    Capitalism is awesome.

  4. chrrey103 says:

    I find it inetresting that right after they made it harder to file bankruptcy for individuals all he!! broke loose. I think someone saw this coming.

  5. Erwos says:

    @chrrey103: Yes, anyone with half a brain saw this coming.

  6. bohemian says:

    @chrrey103: I am sure it was a calculated move.

    The ironic thing is that people are cash strapped right now yet their creditors will probably ramp up collection efforts and push more people into bankruptcy. That is sort of counterintuitive.

  7. Pro-Pain says:

    I just filed bankruptcy on Friday. Today I’m off to get a new can and fill out some credit card apps! WOO HOO!!

  8. chrisjames says:

    @bohemian: The creditors may realize they’ll be cash strapped too if people get lax about paying up. Look what carefree credit hath wrought.

  9. bloodomen13 says:

    I filed for bankruptcy (chapter 13) in April. Had no contests at the hearing with the trustee and creditors stopped contacting me until last week…

    Got a letter from Citibank stating that I still owed them money even though I had filed and they did not contest the claim.

    The final hearing was May 1… My attorney said if I hear from them after that date it’s considered harassment. I got an email from Citibank today.

  10. scientician says:

    Credit card companies know they are forcing people into bankruptcy when they hike up the interest rates to 30% after a missed payment. These companies also know that the newly bankrupt can’t file again for another 4 or 8 years and thus fill their mailboxes w/ offers w/in two weeks of discharge.

    I expect the filing rate to continue to rise as people realize that they can in fact still file for bankruptcy. In our economy people are encouraged to spend and keep spending beyond their means (by the banks, credit card companies, president, etc.). Unfortunately, when the economy is this slow, the bankruptcy filings will rise.

  11. thufir_hawat says:

    The chart from ABI is pretty self-explanatory. In the runup to the BAPCA* taking effect, people filed in large numbers out of fear that they would not be eligible for protection anymore (fear, by the way, that the lawyers did not dissuade). Immediately after, filings fell to a trickle. Now that reality has set in — along acceptance of the 0 dividend plan — they are on the rise. Filings will level out before long. Which is why it is called equilibrium.

    *2005′s Bankruptcy Abuse Prevention and Consumer Protection Act (was it the consumers who were being protected? really?)

  12. Erwos says:

    @thufir_hawat: Sure – it was protecting responsible consumers like myself from getting stuck with a bill from the irresponsible.

  13. m4ximusprim3 says:

    @Pro-Pain: So I’m to understand that bankruptcy means more free money?

    I am intrigued by your ideas and would like to subscribe to your newsletter.

  14. u1itn0w2day says:

    @chrrey103-absolutely correct.When did they make it harder to file for bankruptcy-2004.Not only did interest rates go up on stuff like sub prime there has been a slow steady increase in credit card rates as well.

  15. humphrmi says:

    @m4ximusprim3: Yes, under current bankruptcy law in America, bankruptcy means free money. Even with their “reform”.

    @chrrey103: LOL I was just going to post along the same lines… a great case of banks screwing themselves. They lobbied hard for the BKL reform laws, claiming that people abused the system. And they were mostly right. But then right after the US legal system gives them a lifeline, they go and squander it by loaning billions to people who had bankruptcy written all over them.

    lolcat sez: “IM IN UR BANKZ, LAUGHIN AT UR BANKRUPTCIEZ”

  16. captainleah says:

    if you are not going to let me post please delete my account