Debt Reduction Advice | Debt Reduction Advice

In a sure sign that the economic recovery is still a rather fragile one, the number of consumer bankruptcy filings soared early this year. The American Bankruptcy Institute reported that filings rose 14 percent this February when compared to the same month one year earlier. In fact, the 111,693 consumer bankruptcy filings that the institute reported also represented a fairly dramatic increase of 9 percent from January of this year. It’s all a bad sign that the economy, despite some encouraging signs, has still not recovered.

Chapter 7 Filings Continue to Rise In even worse news, consumers relied more on Chapter 7 filings – a more severe form of bankruptcy – in February. The institute reported that Chapter 13 bankruptcy filings fell 3 percent in the month when compared to January. This not what financial analysts had predicted would happen when a new bankruptcy law went into effect in 2005. The hope was that more consumers would avoid Chapter 7 and instead turn to Chapter 13, which requires filers to pay back most of their debt at a pace that they can afford. However, the country’s economic woes seem to have dashed that hope. As a growing number of people lose their jobs or see their incomes fall, they can only watch as their debt continues to soar. When this debt becomes overwhelming, many individuals turn to Chapter 7 to wipe it out.

Tough News All Around The institute report wasn’t the only piece of unsettling bankruptcy news. The Administrative Office of the U.S. Courts earlier this month reported that the country saw 1.47 million bankruptcy filings in 2009. That’s an increase of 32 percent from 2008. Again, it was Chapter 7 filings that rose the most; these filings increased 41 percent in 2009 while Chapter 13 filings rose only 12 percent. The news wasn’t better for businesses, either. Business bankruptcy filings shot up to 6,557 in February. That’s up from 6,390 in the same month one year earlier.

A Tough Decision Despite what these numbers suggest, declaring bankruptcy is not an easy decision for individuals. They know that it has a negative impact on their credit scores, hanging on their credit reports for 10 years. And they know that it will be extremely difficult to take out new loans or qualify for credit card accounts when they are saddled with a bankruptcy filing on their record. Yet the nation’s still sluggish economy has left a growing number of individuals with the sad realization that bankruptcy is their only real choice.