Chapter 7 Bankruptcy Filings Remain High in March

Chapter bankruptcy rates reached a new high this past month. Reuter’s reported that March marked the highest amount of personal and commercial bankruptcies since 2005.

According to data compiled by AACER, Automated Access to Court Electronic Records, there were 158,141 bankruptcies petitions filed this past month. This increased 20 percent from March 2009.

So far, this was the highest number since the much talked about reforms in 2005. The new bankruptcy laws included the creation of the Chapter 7 means test, and initially caused a dramatic reduction in annual filings.

Karen Gross, director for Coalition for Debtor Education, said that there were several factors that contributed to this high number in the past month.

She said that continuing job losses, increase in credit costs and high interest rates on credit cards created this huge increase in bankruptcies. She further said that these factors could continue to increase the number of bankruptcy petitions filed.

Of all the cases, about 75 percent were Chapter 7 bankruptcy filings. This is the most common bankruptcy chapter, and also typically the quickest.

The rest of the petitions were filed under chapter 13 and Chapter 11. Both chapters allow people to restructure their debts, but Chapter 11 is used almost exclusively by businesses.

The high number of Chapter 7 filings could be related to the mortgage crisis, and the number of underwater mortgages. An underwater mortgage is one where the homeowner owes more on the loan than the home is worth.

Many people, Reuters reports, are simply letting their houses go to foreclosure and filing Chapter 7. Unemployment left many people unable to make the payments needed in a Chapter 13 plan.

Experts also said that bankruptcies increased in March because of tax refunds. After people filed their taxes, they used their tax refunds to pay their bankruptcy attorneys.

“Filing rates will stay at least at current levels and could rise more, especially if unemployment stays near current levels,” Gross said.