A growing number of Americans are seeking financial relief through bankruptcy, according to recent reports by the American Bankruptcy Institute.
Total business and nonbusiness filings topped 1.4 million in 2009, according to the report. That was a 32 percent increase over the previous year, which experienced 1.1 million filings. Such filings can damage a consumer's credit score for 10 years.
This approaches levels experienced prior to the bankruptcy reform in 2005. That year's Bankruptcy Abuse Prevention and Consumer Protection Act made it more difficult for consumers to file for Chapter 7.
"Today’s figures confirm the economic stress that businesses and consumers continue to endure," Samuel J. Gerdano, executive director of ABI, said.
Consumer bankruptcies accounted for the majority of the filings. More than one million of these were chapter 7 bankruptcies, which allow the debtor to liquidate their property.
The number of consumers applying for chapter 13 bankruptcies was 12 percent higher than 2008 levels. This allows the debtor to keep their property and pay off loans over time, usually three to five years. The percentage of consumers in this category has decreased since the reform.
Nevada reported the highest per capita rating during 2009, according to the report. It was followed by Tennessee, Georgia, Indiana and Alabama.
More recently, the American Bankruptcy Institute reported 111,693 consumer filings in February. This was 9 percent higher than the previous month and 14 percent above February 2009 levels.
Gerdano predicted that filings would continue to grow in 2010, reaching 1.5 million by the end of the year. This is comparable to averages witnessed in the years leading up to passage of the BAPCPA. Filings peaked in 2005 at more than 2 million.
"While Congress and the Obama administration continue to consider measures to reduce high unemployment and mortgage burdens, families with increasing debt loads have little choice but to continue to turn to bankruptcy for financial relief," Gerdano said.
The Obama administration recently announced an initiative aimed at increasing hiring at companies with 100 or less employees. For every net job created, the Small Business Jobs and Wages Tax Credit would offer $5,000.
The federal government has launched various initiatives to reduce the financial burden faced by homeowners. The Making Home Affordable program allows borrowers who have lost equity or fallen behind on their loans to reduce payments by refinancing or modifying their mortgages.
Many of these homeowners would not be able to refinance otherwise because they have underwater loans or high loan-to-value ratios.