Will Hurricane Sandy Affect the Nation’s Bankruptcy Rates?
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Will Hurricane Sandy Affect the Nation’s Bankruptcy Rates?

Date: October 29, 2012

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A study done by Robert M. Lawless at the University of Illinois College of Law concluded that bankruptcy rates in areas affected by major hurricanes increase approximately twelve to thirty-six months post-storm. This is not a surprising statistic, as people affected by major hurricanes often lose their homes, cars, jobs, personal assets and sometimes loved ones.

The target zone for Hurricane Sandy is big, covering Baltimore, Boston, Philadelphia, New York and Boston. President Obama has signed emergency declarations for the District of Columbia, Massachusetts and New York. David Axelrod, the President’s main campaign advisor, told CNN, “We’re most concerned about people. This storm could affect 50 million people. The best thing we can do is to focus on how we can help people, and hope it all clears out by next weekend.”

The number of people potentially affected by Hurricane Sandy is too large to think about, but it must be done. The current fear is for lives, but the aftermath, post-storm, is a whole other story. Millions of people are in danger of losing everything they have if this natural disaster sweeps through the nation as predicted.

The cost of rebuilding from the ground up is unimaginable, not to mention that all old obligations and debts still need to be addressed and taken care of. This entire process takes time and cannot be addressed immediately after the destruction of the hurricane. It has been estimated that one year after a hurricane, bankruptcies go up 11% and then they increase to 30% five years after.

Just before Hurricane Katrina hit in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect. The aftermath of that hurricane, shined a bright light on the flaws of the new law which called for more detailed information regarding income and expenses necessary to qualify for bankruptcy assistance. Many people who had to file bankruptcy post-hurricane, no longer had this supporting documentation.

Post Hurricane Katrina, The Justice Department’s US Trustee program said that for disaster victims, including victims of hurricanes, the means test rules would not be enforced. This gives hope to potential victims of Hurricane Sandy who may find themselves in a financial tailspin and also demonstrates why bankruptcy rates increase in the aftermath of hurricanes.


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