By Chris Tyler
Consumer bankruptcy filings are already topping the near record pace set in 2008 this year as a result of the real estate crisis, and the number of consumer bankruptcies may set a new record in 2009. The fall out from the credit crisis, triggering the epidemic of foreclosures has homeowners scrambling to protect assets.
National Bankruptcy Research Center numbers show consumer bankruptcy filings for 2008 were 1,064,927, nearly a 33 percent jump from 2007.
“U.S. households are under great financial stress today,” said Sam Gerdano, Executive Director of the American Bankruptcy Institute. “For many, bankruptcy seems to be their best option. We expect more than 1.4 million new cases filed in 2009.” ABI is the largest nonpartisan organization researching insolvency, and has been providing Congress analysis of bankruptcy issues since 1982.
The majority of bankruptcy filers are consumers caught up in the housing crisis, according to attorneys handing the cases. An increasing number of filers have lost their jobs due to the weakening economy. “Once that happens that tends to cause quite a few bankruptcies,” said St. Paul, Minnesota attorney Mary Jo Jensen-Carter, chair of the Minnesota State Bar Association’s Bankruptcy Section.
The numbers of those filing who have lost jobs and are able to find new jobs are also increasing as a result of being underemployed. Often times employees aren’t able to find work that pays enough to pay all their bills. Some are filing bankruptcy in order to stop or delay foreclosure to give homeowners time to catch up on the mortgage or negotiate lower loan payments.
The loss of home equity has also forced many to file. Home equity loans and lines of credit have been slashed by many banks cutting off the stream of income many used to pay mortgages and other bills in case of unemployment. Without the lines of credit to access, many more homeowners are expected to file for bankruptcy in 2009.
Attorneys handling the cases say filers also include elderly, injured and veterans who have been hurt by the financial crisis. Bankruptcy attorneys are so busy these days that they are at their limits to handle more cases, and more homeowners would like to file but they don’t have the money to afford it.
The cost to file has increased since attorneys are now required to verify clients’ incomes and conduct a test to determine eligibility before filing cases under new provisions. The requirements have forced attorneys to spend more time and as a result charge more.
Bankruptcy attorneys typically charge a flat rate for doing the necessary paperwork to file in the range of $1,500 for Chapter 7 and around $3,000 for Chapter 13, but rates vary according to where filers are located in the country.
Under the Bankruptcy Abuse and Consumer Protection Act of 2005 some will be able to hold on to their homes and others will not. Judges may soon have the authority set by the federal government to reset interest rates and mortgage payments, which has already occurred in some state courts.