New reports released by the American Bankruptcy Institute show a soaring amount of consumer bankruptcies compared to this time a year ago and even since the last numbers came out in August of this year. Compared to September 2008, consumer bankruptcies have increased by 41% with a total of 124,790 filings for the month. Bankruptcies are also up 4% from August. The 2009 total of personal bankruptcy filings so far is 1.05 million, and experts estimate over 1.4 million by the end of the year.
As unemployment rises to a 26-year high of 9.8% and the number of delinquencies the past few months has increased despite the overall improvement of the real estate market, bankruptcy has become a reality for more individuals, including many who never thought they would experience such financial trouble. The troubling economic situation of the past eighteen months has lessened the stigma over the idea of personal bankruptcy, however, and filing for bankruptcy can mean a new beginning for many who are forced to face such a financial overhaul.
The Federal Reserve reports that personal debt is at an all-time high currently, which runs consistently with the skyrocketing number of consumer bankruptcy claims. There is significant concern from experts that this all-time high of debt relative to disposable income will increase the amount of delinquencies further, ultimately hurting lenders' ability to mitigate this crisis.
Bankruptcy entails a unique situation for each person facing delinquency. Whether an individual files through Chapter 7 or 13 makes a large difference in how the bankruptcy process goes; this is because Chapter 7 typically includes foreclosure of one's property, whereas Chapter 13 allows the filer to keep their home as they pay back all debts in three to five years. There are ways in which one can retain their home under Chapter 7 if there is not enough equity in the home, usually because a second mortgage has been taken out on the property or because the home's value has decreased, as many have since the height of the housing market's bubble in 2007. Still, losing one's home under Chapter 7 is a reality for many.
Though bankruptcy will initially hurt a person's credit score, it could ultimately be better for them than struggling with numerous credit card payments for years, considering that credit scores are based on payment history. The sooner one fixes the problem, the sooner they can begin to improve their score, in essence.
A key method to stop additional incurrent of debt, experts say, is to time filing for bankruptcy carefully. Though many people believe filing as soon as there is concern over one's financial state will be helpful in the long run, the opposite can also be true, such as in cases of hospitalization bills. Waiting to file can also allow people to stay in their homes without paying on their mortgage for an extended period of time.
The important first step is to consult an attorney who can help decide if bankruptcy is the best option, but even if bankruptcy appears to be the only route, there is hope of getting back on track. This is good news for the country's almost one and half million personal bankruptcy filers this year alone.
