Business Articles - With Bankruptcies Up 100%, Is the Recession Over?

by NICK ADAMA - Date: 2010-02-05 - Word Count: 551 Share This!

In another sign that the average American is becoming largely desperate as the current recession continues, bankruptcy filings are up 100% since the year 2007, according to data released by the US Courts. With more economic difficulties and fewer jobs to go around, people just have decreased (or no) income to pay their debts, whether they are credit cards or home loans.

The rise in bankruptcy filings is also occurring despite the banks' and lawmakers' attempts to create a modern version of the debtor's prison. The 2005 bankruptcy reform legislation was created to cut down on the number of people filing for debt relief by making it more difficult to discharge debts. If borrowers did not meet the new requirements, they would be required to pay back a portion of the accounts to their creditors.

Before the 2005 act went into practice in 2006, record numbers of debtors filed bankruptcy under the old laws. Once the new law went into effect, filings dropped sharply for a time, but have begun a steady climb from 2006 until the present. And with tens of millions of Americans now out of work and facing huge amounts of debt, bankruptcy filings are essentially back to where they were before the reform was created.

With the new bankruptcy laws in effect, simple dismissals of debt under Chapter 7 filings were supposed to be reduced. A means test was added to the requirements to file, and if the debtor did not pass the test, they would be forced into a Chapter 13 bankruptcy if they still wanted relief through the court system.

Although the means test may have kept some borrowers from filing Chapter 7, the high unemployment rate has guaranteed that many people just do not have any means to pay their bills. For them, discharging their debt may be the only answer to avoid collection actions by banks or collection agencies. And with no means to pay their bills at all, they are able to surpass the court's test and file a Chapter 7.

Thus, banks have always wanted to avoid the possibility of borrowers filing for Chapter 7 bankruptcy and being able to discharge all of their debts. Even if the debtors do not have any assets or income, the banks would rather be able to sell the debts or sue the borrowers and obtain judgments and garnishments against them. If bankruptcy is an option at all, banks would rather that it be a Chapter 13 repayment plan, rather than a discharge.

Without an end in sight for the recession, and with the government rewarding banks for making bad loans to homeowners, bankruptcy filings can be expected to keep increasing. Americans do not have jobs or assets, because they are being forced to subsidize banks which keep making poor lending decisions and then claiming the nation's money and assets for themselves as ordinary people can not maintain. Nick publishes articles on the ForeclosureFish website, which aims to educate homeowners how they can prevent on their homes while they still have time. The site describes various methods to save a home, including foreclosure refinancing, deed in lieu, mortgage modification, filing bankruptcy, and more. Visit the site today to read more and find out what options you can use to prevent losing your home:

Related Tags: credit cards, bankruptcy, chapter 7, hardship, filing for bankruptcy, economic recession, bankruptcy filings, means test, collection actions

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