Bankruptcy Losing its Shame
admin on March 11th, 2009
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It’s beginning to appear that in this time of economic crisis, declaring personal bankruptcy has become a viable option for more people than ever before. As a result, it is losing its historical stigma due, in part, to the reality that we all probably now know more people than ever before who have done so. And we are more understanding.
With unemployment accelerating at a pace not seen in decades while the real estate market continues to flounder, the economy is faced with the reality that today, more people are just relinquishing their homes and other worldly possessions instead of working out a debt repayment plan in bankruptcy courts across the nation.
Several experts in the credit counseling and bankruptcy profession recognize the attitude change as being a byproduct of the current economic conditions. Historically, bankruptcy has been looked-upon as a personal failure.
Chapter 7 bankruptcy filings for individuals are up more than 25% for the first three-quarters of 2008. This, alarmingly, is in comparison than the entirety of the year 2007. (Chapter 7 Bankruptcy liquidates the assets and turns them into cash for creditors.)
Conversely, Chapter 13 bankruptcy filings have plummeted from 42% of all personal bankruptcies in 2006 to a level of 25% through three-quarters of 2008. (Chapter 13 Bankruptcy allows the client to keep the assets through a repayment plan with creditors.)
This increase in Chapter 7 filings comes despite the 2005 change in the federal bankruptcy code in making it harder to qualify for liquidation-style bankruptcy in an effort to encourage Chapter 13 filings, which forgive less debt and require payment plans in most cases.
People have resigned themselves to their own personal reality. This has become a fact of life for many people. In the past, folks had a sense of urgency and a strong desire to do whatever it takes to keep their homes. Today, people are simply walking away… tossing the keys to the home inside… packing up their belongings and telling the mortgage companies, “Come and take it. We’re done here.” Why is that? Quite simply, no matter how much they scrimp, save, and fight - when the sun goes down, they’re still significantly “upside down” on their mortgages.
More people are becoming eligible to file bankruptcy, incomes are sinking, work hours are being cut-back, and too many are simply being laid-off. There are drawbacks to both the consumer and the community. Neighborhoods will be affected negatively for a long time as bankruptcies and foreclosures continue to accelerate with no end in sight.
