The recent statistics on bankruptcy filings, at first glance, do not seem to indicate that the economy is on the mend. During the first six months of 2010, U.S. consumer bankruptcy filings rose to 770,117, representing a 14 percent increase over filings made during the same period in 2009.
This figure for 2010 represents the highest number of bankruptcy filings since the Bankruptcy Abuse Prevention and Consumer Act was passed five years ago, when 2,039,214 Americans rushed to file bankruptcy. The American Bankruptcy Institute anticipates at least 1.6 million bankruptcy filings for 2010.
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However, the growing number of bankruptcies since 2005, and the 300-600% uptick, when taken in context, may reveal something even more fascinating about Americans and their relationship to debt. In 2006, the dramatically lower number of consumer filings (582,042 consumer bankruptcies filed), was artificially altered by the previous year's rush to file. By analyzing bankruptcy filings for the last decade, it becomes apparent that even before the 2005 deadline or the economic devastation created by the 9/11 attacks in 2001, consumer bankruptcies were high. In 2000, 1,224,420 consumer bankruptcies were filed in the U.S. In 1998, 1,387,029 consumer bankruptcies were filed.
The news in states like California and Nevada, is among the bleakest. California, by far the most populous state, with roughly 12% of the total population, is experiencing both the largest number of bankruptcies and almost the highest percentage, per capita. While Nevada has a slightly higher ratio of bankruptcies, its total consumer bankruptcy filings are expected to hit approximately 24,000 for 2010, versus, approximately 170,000 for the Golden State. Places as diverse as Washington, D.C., Alaska, and South Carolina had the lowest filing rates, each falling below 40 percent of the national average.
Per a bankruptcy attorney in Riverside, CA, (One of the top ten, hardest hit cities in the current recession.) "Having filed 5,000+ bankruptcies during my career, and with close to 20% of those occurring in the last 18 months, the financial holocaust of the last 3-4 years is clearly the main driver in recent bankruptcy filings. Normally conservative consumers were seduced by a combination of wildly inflated home values, excessive optimism and easy credit offerings, into over-extending themselves as never before. Now, they've finally realized that filing bankruptcy is the smartest & fastest way to recover, even though the thought of filing really eats at their sense of moral responsibility."
With many news outlets predicting a double-dip recession, consumers may continue being hard pressed to avoid filing bankruptcy. Even with business investment poised to seriously rebound by late 2011. While this is potentially good news, it could still mean a 2-5 year, minimum recovery cycle for jobs, consumer spending, etc. And, continued high levels of consumer bankruptcy filings. However, the long-term consequences once associated with filing, have changed dramatically. Consumers can now rebuild credit relatively quickly, through secure credit card offerings, as well as affordable auto loans & apartment leases specifically targeted to people who've filed bankruptcy. Perhaps the best news is that the laws of supply and demand have reshaped the credit landscape, allowing consumers to rebuild their lives with dignity, grace and a minimum of hardship. While most consumers assume that they'll have to wait 8-10 years to begin rebuilding credit, the bottom line is, the strategic use of specialty credit can help consumers rebuild fair to good credit within 18-24 months of their bankruptcy's discharge.
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