In a year, the number of Americans declaring bankruptcy increased by a third
Four years ago, there was no recession. Americans simply decided to take advantage of the opportunity to use the old, more lenient bankruptcy laws compared to those that came into effect in October 2005. Now, US citizens are declaring their financial insolvency under the pressure of the crisis.
In December 2009 alone, 113,274 Americans (a third more than a year earlier) went to court seeking protection from creditors. Particularly many US residents are asking courts to apply Chapter 7 of the US Bankruptcy Code, which allows trustees to sell the debtor's property, pay off some debts, and discharge others. In November 2009, for example, the number of those choosing this path was 42% higher than in November 2008.
Interestingly, the law also has a more lenient Chapter 13, which requires that a person have a steady income to repay debts according to a plan drawn up by a court-appointed specialist. In this case, trustees sell not all but only part of the bankrupt's property. It would seem that this path is preferable for ruined citizens, but the demand in courts for this debt solution increased less significantly – by 12%.
The thing is that the main condition of Chapter 13 is a steady income, i.e., a job, and that is precisely the problem. In December, according to official data alone, another 85,000 Americans joined the ranks of the unemployed. Of the 15.4 million jobless, almost 40% have been unable to find work for 27 weeks or more. All these people, whose number is growing every day, fall not under the lenient Chapter 13 but under the tough Chapter 7 of the Bankruptcy Code.
Despite the authorities' official announcement that the country has emerged from recession, analysts predict a significant increase in the number of insolvent debtors in the coming year as well. 'The combination of economic hardships – large debts, rising unemployment, and unaffordable mortgage payments for most – are depriving many American consumers of choice and forcing them to seek protection from creditors,' said Samuel Gerdano, executive director of the American Bankruptcy Institute, in an interview with ABC News. The vast majority of experts agree with his assessments. The most alarming thing, in the general opinion, is the particularly rapid increase in bankruptcies among the middle class, which just 2-3 years ago was considered the most stable in this regard.
However, the recession does not spare millionaires either, and quite well-known people in the US. Bernie Kosar, a well-known former quarterback of the National Football League, earned many millions during his sports career, but at the end of last year he went to court asking to apply Chapter 7 of the Bankruptcy Code. Now a court-appointed trustee will sell Kosar's property. All $9.2 million (the amount appraised by the court) will go to pay off the bank debt. Another $9.7 million will have to be written off by the bank.
Speaking of the spread of the bankruptcy epidemic among the middle class, the NBRC cites the San Francisco Bay area as an example, where, besides the city itself, there are such recently prosperous counties as Contra Costa and Alameda. In these, the number of bankruptcies increased by 59% in 2009. The growth was even higher in San Francisco itself and San Mateo County – 62%. In the state of Georgia, every 50th family filed for bankruptcy last year.
'For the first time in many years, so many well-educated people are resorting to bankruptcy proceedings,' notes bankruptcy attorney Jeremy Richards from Austin, Texas.
Sergey Lavinov.
Novye Izvestia