Last month saw a 34% growth in bankruptcies filings, as compared to cases filed in October 2007. According to the New York Times, this increase in the number of bankruptcy filings is due in large part to the specific nature of this particular economic crisis. Besides the usual reasons why people look for bankruptcy protection, such as job loss, medical bills, divorce, the central reasons for the increase in Chapter 7 and Chapter 13 bankruptcy filings during this economic crisis have more to do with the abrupt drop of home values, unstable incomes, and the “credit crunch”.
It seems that more people are turning to bankruptcy lawyers during this economic downturn than during the tech bust because of how the mortgage crisis has affected the lending practices of financial institutions. Essentially, where debtors used to be able to avoid bankruptcy by obtaining more credit, and tried to stay afloat for a while longer, the current “credit crunch” has made it nearly impossible for many to obtain new credit cards, refinance their home mortgages, or get a home equitiy line of credit, due to the banks’ pull back on lending. This has, in turn, driven many debtors to file for bankruptcy that would have otherwise avoided it. This does not mean that many people aren’t trying their best to avoid filing, as seen in a key statistical comparison to the filings in 2001.
In recent studies, it was shown that the typical family who filed for bankruptcy in 2007 carried 21% more secured debt and 44% more unsecured debt than people who filed in 2001, even though average income among those filing for bankruptcy remained static over those six years. So although income stayed the same, debt rose, illustrating the attempt by debtors to put off bankruptcy as long as possible while trying to get back on their feet. Studies also show that filings increased mostly in places where real estate values skyrocketed and then crashed, including Irvine, Laguna Beach, and Mission Viejo in Orange County, as well as Corona, Murrieta, and Temecula in Riverside County.
Although filing for bankruptcy and hiring an attorney is not anyone’s idea of a good time, for many Orange County, Riverside County, and San Bernardino County residents it’s the most sensible solution to get their financial sanity back, and the best path toward a well deserved fresh start.
To read the NY Times article, click here
