Hurricane Victims Likely to Impact National Filing Bankruptcy Rates
An extensive study conducted by University of Illinois law professor Robert Lawless indicates that the financial fallout from Hurricane Katrina may take up to three years to reveal itself. Lawless studied bankruptcy filing trends in all eighteen areas impacted by major hurricanes and tropical storms between 1980 and 2004.
The increase in bankruptcy filings in affected areas was substantially higher than that in unaffected areas for a period of at least 36 months after the disaster.
Lawless's findings shouldn't be surprising. Victims of natural disasters like Hurricane Katrina often lose all of their worldly possessions and their jobs simultaneously, meaning that they have substantial new expenses and dramatically decreased income-or none at all.
Since many hurricane victims are essentially starting from scratch in the wake of the disaster, they'll have to find new lodging, replace consumer goods, and pay all of the normal bills associated with day-to-day living.
At the same time, however, they'll still be bound by debts from their previous lives: debts that were incurred under very different circumstances.
It is also not surprising that the greatest increase in bankruptcy filings comes 12-36 months after the disaster, rather than in the immediate aftermath. It's only when hurricane victims begin rebuilding that many are able to accurately assess their new financial circumstances.
That being the case, we have likely just begun to see the impact of Katrina on consumer finances. Consumer bankruptcy attorneys have offered free seminars and advice to New Orleans consumers affected by the hurricane.
Lawless suggests, however, that we may not see the concentration of bankruptcy filings in the affected areas that have followed previous storms. That's because the devastation in New Orleans and Mississippi was so dramatic that hurricane victifms have relocated across the country. Thus, Lawless expects to see an increase the anticipated increase in bankruptcy filings dispersed across the country, with less contrast between the local increase and the increase in unaffected areas.
Adding the increase attributable to hurricane victims to the already-mounting bankruptcy filings across the country, we can expect to see those numbers continue to climb in the near future.