Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

In a year that seemed to offer little in the way of good news, the 2009 bankruptcy numbers offer little in the way of relief. Job losses, housing foreclosures and the worst recession in many years allowed little breathing room for individuals facing challenging economic times.

The figures, from the National Bankruptcy Research Center, show that the number of personal bankruptcy chapter filings by Americans rose by a third in 2009.

The National Bankruptcy Research Center is a reporting group that compiles and analyzes bankruptcy data, and they determined that there were 1.41 million bankruptcy filings last year. This was a 32 percent increase from 2008.

ABC News is reporting that in December of last year alone there were 113,274 Chapter 13 and Chapter 7 filings. This alone represents a third rise from December of 2008. Chapter 7 filings were up even more than that—over 40 percent—in November of 2009, as compared to the same month in 2008.

Chapter 13 filings were up by 12 percent as of November, and made up less than a third of filings.
In Chapter 7 bankruptcy, the filer must liquidate some assets to pay off debts. In Chapter 13 bankruptcy, filers with income can avoid foreclosure and reschedule secured debts.

To illustrate the impact that the financial crisis can have on individuals, as it has on many people in 2009, ABC News highlighted the experience of Gerard Young, an account executive at a PR firm. For years, Young enjoyed a six-figure salary before the crisis, but soon after he found himself filing for Chapter 7 bankruptcy.

“You never really think it could happen to you,” Young told ABC News. “One day you’re out shopping for a house and enjoying your life and then the next thing you know you’re broke.”

Bankruptcy experts do not expect the number of bankruptcy filings to drop in 2010, as the impact of the recession continues to feature high unemployment rates and increased debt. There are 15.4 million unemployed people in the U.S. Nearly 40 percent of those people have been out of work for more than 27 weeks.

“A combination of economic stress, including high debt loads, rising unemployment and unsustainable mortgage burdens, left many consumers with little choice but to seek the financial relief of bankruptcy,” said Samuel J. Gerdano of the American Bankruptcy Institute.

The recession is also forcing people into bankruptcy who might not have considered it in the past, like middle-class Americans.

The Institute for Financial Literacy is a group that provides bankruptcy counseling and assistance. According to an IFL survey from 2008, Americans with higher levels of income and with more education are filing for bankruptcy. The trend reveals the true depth of the recession, as those who may have felt financially secure are now resorting to bankruptcy filings.

“For the first time in many, many years, you are seeing more educated people with high incomes turning to bankruptcy,” Austin-based bankruptcy attorney Jeremy Richards told ABC News. “These were folks who have lost high-paying jobs and now find themselves in financial trouble.”