Bankruptcy Filings Continue to Rise for Businesses and Individuals

SA Today reports that both consumer and commercial bankruptcies continue to increase, despite some suggestions that the economy is thawing.

New Chapter 7 bankruptcy laws enacted in 2005 caused a sharp decline in filings. But over the last few years, companies and individuals are filing bankruptcy in record numbers.

Unemployment has been a key factor in fueling the growth of bankruptcy filings, the newspaper said.

In 2009, unemployment almost reached 10 percent nationally. Out of work, many families struggled to pay their bills as they cut out much of their discretionary spending.

In the past, many people relied on credit cards to stay afloat. But USA Today reports that credit is now harder to come as credit markets shrink and lenders are more careful who they provide loans to.

Many people have turned to credit counseling in attempt to avoid bankruptcies. But, according to David Jones – president of Independent Consumer Credit Counseling – it is not as easy as it used to be.

“People are coming to us in much worse shape than they used to be. We used to be able to help 20 percent to 25 percent of the people who came to us and now we can only help 7 to 8 percent,” he told the paper.

The credit market has also impacted businesses and the commercial bankruptcy rates. Businesses are finding credit hard to come by as well, and many are facing smaller profits as consumers spend less.

Experts say this can lead to a vicious cycle where business bankruptcy leads to layoffs which lead to chapter 7 bankruptcy. These, in turn, can lead to less spending which hurts businesses.

Certain states have higher bankruptcy rates than others in both commercial and consumer filings.
Nevada, California, and Michigan have the highest bankruptcy rates in the nation. Nevada and California were both hit hard with the failing real estate market. Michigan was hit hard because of the bankruptcies of many auto companies which caused many layoffs.