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Consumer Bankruptcy Filings At Highest Level In Nearly Four Years

Highest monthly total since 2005 bankruptcy law overhaul

By James Limbach
ConsumerAffairs.com

August 4, 2009

According to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC), the July 2009 consumer filing total represented a 34.3 percent increase nationwide from the same period a year ago, and an 8.7 percent increase over the June 2009 consumer filing total of 116,365.

Chapter 13 filings, which are available for an individual with regular income whose debts do not exceed specific amounts, constituted 28.3 percent of all consumer cases in July, slightly above the June rate. Chapter 13 is typically used to budget some of the debtor's future earnings under a plan through which unsecured creditors are paid in whole or in part.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made sweeping changes to American bankruptcy laws, affecting both consumer and business bankruptcies. Many of the bill's provisions were explicitly designed by the bill's Congressional sponsors to make it harder for people to file for bankruptcy.

"Today's bankruptcy filing number reflects the sustained and growing financial stress on U.S. households," said ABI Executive Director Samuel J. Gerdano. "Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year."

Other types of filings include:

• Chapter 7, which is available to both individual and business debtors. Its purpose is to achieve a fair distribution to creditors of the debtor's available non-exempt property. Unsecured debts not reaffirmed are discharged, providing a fresh financial start;

• Chapter 11, the purpose of which is to rehabilitate a business as a going concern or reorganize an individual's finances through a court-approved reorganization plan; and

• Chapter 12 of the Bankruptcy Code is designed to give special debt relief to a family farmer with regular income from farming.

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