BANKRUPTCY UPDATES

• Taking Your Credit Score from Bankrupt to Perfect 10 (May 21, 2012)
• Music Storage Website MP3Tunes.com Seeks Bankruptcy Protection (May 22, 2012)
• Book Publisher Houghton Mifflin Harcourt Files for Bankruptcy (May 17, 2012)
• Las Vegas Tycoon Lists $500 Million in Debts in Bankruptcy Filing (May 15, 2012)
• Nassau Broadcasting Sells its Assets in Bankruptcy Court (May 22, 2012)

Personal Bankruptcy Filings on the Rise Again

Bucking a recent downward trend, the number of personal bankruptcy filings rose in July. This jump reversed three months of slow decline and shows that consumers are still reeling from the economic turmoil of the past few years.

According to the Wall Street Journal, some experts attribute the rise to the lack of available credit for struggling consumers. The recent credit crunch has squeezed debtors’ ability to pay debts with new sources of credit. As debts rise, more and more consumers are embracing personal bankruptcy as a potential cure for their financial ills.

Statistics compiled by the National Bankruptcy Research Center offer telling information about current bankruptcy trends:

• In July, consumers filed a total of 137,698 personal bankruptcies. This figure was nine percent higher than the number of filings in June.
• The number of bankruptcies filed in July was also 9 percent higher than the amount of bankruptcies in July of 2009.
• This year, consumers are on pace to file for a record number of bankruptcies. Americans will likely top last year’s high mark of 1.4 million filings.
• In 2010, there have been a total of 980,000 bankruptcy filings. This represents about 1 in 125 American households. At the same time last year, only 802,000 bankruptcies had been filed.

Effects of 2005 Reforms

Bankruptcy reforms were passed in 2005 in an attempt to change the U.S. bankruptcy process. Some experts believed the new laws would make filing bankruptcy more difficult, thereby reducing the total number of filings.

At first, this was the case, and there was a drastic drop in the number of cases filed.

However, bankruptcy filings have experienced a large rise since 2006, although this could be largely attributed to the recent recession. According to reports, the lack of access to credit may prevent some people from going into debt, which would reduce the overall need for bankruptcy.

Then again, once the economy recovers, credit access will likely increase, which could lead to another cycle of rising credit card debt.

Bankruptcy Clusters in Specific Regions

Not all parts of the country experience bankruptcy equally. Economic distress has hit some areas harder than others.

Sources indicate that places with close ties to financial centers have been hit hard by the debt bug. One particular hub of economic activity, Atlanta, Georgia, has a shockingly high bankruptcy rate. Suburban counties around Atlanta account for more than half of the top 10 counties with the highest bankruptcy filing rates in the U.S.

Of course, proximity to centers of commerce is not the only variable. States such as Hawaii, Arizona, and Utah have experienced a 30 percent jump in bankruptcy filings over the past year.