Consumer bankruptcies jump in 2008

Study shows that 1.06 million American consumers filed for bankruptcy protection last year.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ben Rooney, CNNMoney.com staff writer

How will the Obama stimulus proposal affect the economy?
  • It will end the recession quickly
  • It won't end the recession, but will soften its impact
  • It will make the recession worse
  • No impact

NEW YORK (CNNMoney.com) -- Bankruptcy filings by American consumers increased nearly a third in 2008, according to a new report.

The American Bankruptcy Institute said overall consumer filings rose to 1.06 million in 2008, compared with 801,840 during 2007. The ABI based its study on data from the National Bankruptcy Research Center.

"Consumers are under great financial stress, with no immediate end in sight," said ABI executive director Samuel Gerdano, in a statement. "We expect the upward spike in personal bankruptcies to continue in 2009."

While the weak economy was a major factor in 2008's increase, the rise in consumer bankruptcy filings is also attributable to better understanding of a key piece of bankruptcy legislation, according to Henry Sommer of the Consumer Bankruptcy Assistance Project in Philadelphia.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it harder for individuals to receive Chapter 7 bankruptcy protection, in part by increasing the costs associated with filing.

"There was a perception that the 2005 law prevented bankruptcy, but that perception is going away now," Sommer said.

Chapter 7 is designed to give individual debtors a "fresh financial start" by discharging many of their debts. Under Chapter 7, a filer's assets - minus those exempted by his or her home state - are liquidated and given to the creditors who are first in line for repayment. Any debts that remain are cancelled.

In 2005, total consumer bankruptcy filings jumped 32% as individuals raced to file before the new rules were instituted. Total filings then plummeted 72% in 2006 after the act went into effect.

But bankruptcy filings have increased despite the 2005 act as economic conditions have deteriorated and the nation has been mired in a recession for more than a year, resuming their rise, up 40% in 2007.

Sommer said he expects bankruptcies to continue climbing in 2009 "as the recession kicks in and people start to have problems with their credit cards and other debts."

And given the "foreclosure crisis" currently plaguing the housing market, "people won't be able to fall back on their home equity," Sommer said.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
7 epic gadget flops From the Microsoft Zune to the BlackBerry PlayBook, the Fire Phone is following in some unfortunate footsteps. More
What I gave up to save $1 million They may have million dollar-plus nest eggs, but they had to make some big sacrifices along the way to get there. Here's what these four savers did without in order to save seven-figures retirement. More
World's Top Employers for New Grads For an exclusive CNNMoney list, research firm Universum Global surveyed college students around the world to see where they most want to work. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.