Bankruptcies Spike in March

The National Bankruptcy Research Center recently released data that showed 149,268 personal bankruptcies filed in the month of March this year. The American Bankruptcy Institute points out that this figure is the highest ever since the Bankruptcy Code overhaul in 2005.

An increase of over 30% as compared to the February figures, this massive number highlights the adverse effects of unemployment and the housing decline on the US economy. The ABI Director has opined that these are the major reasons for the increase in the number of people opting to declare bankruptcy in a bid to obtain financial shelter.

It is important to note that bankruptcy filings under Chapter 7 of the code are higher and has increased at a higher rate than those filed under Chapter 13. The latter requires borrowers to repay a percentage of their loans in order to retain ownership of the home, which appears to be a non starter for many who opt for giving up the home rather than take up the burden of repayment for now.

The Chapter 7 provisions are relatively less complex and also more cost effective. This kind of bankruptcy involves the sale of the borrower’s non exempt assets; the proceeds are used for repayment of creditors in the manner specified under the Bankruptcy law. About 75% of the bankruptcies recorded were Chapter 7 filings.

Analysts believe that as unemployment continues to hover at undesirable levels of nearly 10% and the housing industry is still subdued, borrowers with accumulated debts are opting for cutting their losses rather than trying to make a bid to retain home ownership.

However, other experts have also pointed out that March has traditionally been the month when more bankruptcies are recorded. In support of this trend, analysts say that tax refunds, which are usually received in this month, are typically used to pay lawyers’ fees for filing bankruptcies – a possible reason for the spike in bankruptcies seen in this period year after year. A report on this topic published in the Creditslips website shows that the percentage increase may not be an accurate picture of the actual state of affairs. The fact that the number of business days was much less in February as compared to March has skewed the figures according to this report.

The Justice Department office report shows that bankruptcies in current period have risen by about 11% since 2006-07 statistics. The inability to make repayment, continuing uncertainty about employment prospects and lack of confidence in the markets are believed to be contributing to the growing number of bankruptcies.

Speak Your Mind