Chapter 7 Bankruptcies Rise, Chapter 13 Bankruptcies Decline
Dose of 6,000 Bankruptcies Per Day in 2009 Leave Creditors Hungry
2009 has already seen the highest amount of personal bankruptcies in four years. Back in 2005, the federal government attempted to clamp down on a perceived ballooning bankruptcy rate and lobbied for the Bush-approved Bankruptcy Abuse Prevention and Consumer Protection Act. The Act placed extra burdens on debtors. Before a person could file for bankruptcy, the person now had to undergo a credit counseling session, provide more paperwork, and jump the “Means Test” hurdle. The “Means Test” was meant to prevent debtors who had an ability to repay a portion of their debts from filing chapter 7. Generally, anyone earning higher than their state’s median income based on household size must undergo a “Means Test” analysis to determine whether they qualify for chapter 7 relief.
With unemployment looming at 9.8%, more consumers than ever in the last four years can honestly report their current monthly income is lower than the state’s median—their loss of employment has made their income non-existent.
Those who file Chapter 7 bankruptcy are usually unable to repay credit companies. Filers of chapter 13 opt to pay back their debts over time. The amount of those who can repay their debts has steeply declined, with Chapter 13 personal bankruptcy filings falling 24%. This can be both directly linked to unemployment and a higher prevalence of low income earners.
As you might have guessed, the non-repaid creditors are fuming over how Chapter 7 has taken over most bankruptcy filings. Left to recover the fortune lost in Chapter 7 discharged debt, credit companies might lobby once more for further consequences of Chapter 7 bankruptcy: currently, the 3 major credit bureaus (Trans Union, Equifax, and Experian) can report bankruptcy on one’s credit report for a stretch of time after a bankruptcy. For Chapter 7 bankruptcy, that period is ten years and for Chapter 13 that period is a gentler seven years. Having your bankruptcy reported doesn’t necessarily render one ineligible for any credit, but instead offers limited eligibility for unsavory, often “pre-approved” interest rates. Of course, even without bankruptcy, consumers who struggle to pay their creditors or those who are delinquent on payments, or whose accounts are in collection will see their credit scores plummet.
Credit is undoubtedly a huge necessity for our global economy and the impact of our financial transformation has plundered countless consumers into debt. Yet there’s hope: over a million Americans and counting have found debt relief through Chapter 7 Bankruptcy in 2009. Don’t you think you deserve the same? Call Legal Helpers for a free bankruptcy consultation today. 1.800.260.1402.
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