Bankruptcies are on the rise as Americans adjust to dealing with record-high consumer debt, reduced credit and job losses. Generally through tight economic times, the American homeowner was able to tap home equity to manage finances. However, declining home values and the decreased ability to borrow money has many homeowners struggling to simply hold unto their homes. Many Americans, under financial stress, have managed their daily finances with high-interest and penalty-laden credit cards. This behavior, coupled with the historic financial times, has created an economic environment prone to increased bankruptcy filings.
The bankruptcy filing rate has increased on average 8 percent per month over the last two years. These filing statistics are split between chapter 7 and chapter 13 filing petitions and have grown by 34 percent over the last 12 months. The Chapter 7 bankruptcy provides the petitioner the ability to clear all consumer debts. Although the assets of the petitioner will be sold to pay any outstanding debt, the petitioner is able to receive a “fresh start” with their financial lives. The Chapter 13 bankruptcy will re-organize consumer debts to be repaid by the debtor and allow a homeowner to keep their home while repaying defaulted and delinquent debts. As the economy continues its downward spiral, the number of foreclosure notices continue to grow and more restrictive borrowing guidelines surface, the Americans consumer will be left with few choices outside of filing for bankruptcy.