If for our compatriots personal bankruptcy is still an exceptional phenomenon, then for US residents it is quite an everyday matter. Up to 96% of all bankruptcy cases in American courts are related specifically to personal bankruptcy.
According to Lundquist Consulting, the number of personal bankruptcies in the United States rose sharply in 2005 – to 2 million people. This is 31.6% more than in 2004. Given that about 286 million people live in this country, it turns out that every 150th American is a bankrupt.
According to Lundquist Consulting, the reason for the increase in bankruptcies lies in the fact that in the second half of the year the United States introduced laws tightening the bankruptcy procedure – the Bankruptcy Abuse Prevention and Consumer Protection Act. They impose significant costs on the prospective bankrupt when filing petitions for protection from creditors. Many decided to take advantage of court protection from creditors before these acts came into force.
An important change in legislation for individuals was the amendments to Chapter 7 of the normative act. Under the new rules, a bankrupt cannot use the clause on easing the debt burden if his salary was higher than the average salary in the state. In 2005, 47.2% more individuals took advantage of this easing, which confirms Lundquist Consulting's guess about the reasons for the increase in the number of bankrupts.
It is also confirmed by the fact that during 2005 there was an increase in the number of personal bankruptcies in all regions. But it was especially strong in California, where growth was 36%. At the same time, in 2004, when bankruptcy rules were fairly liberal, the number of bankruptcies decreased in all regions of the United States.
“The number of bankruptcies was high throughout the year. But after the new legislation came into force, it dropped noticeably,” comments Chris Lundquist, founder of Lundquist Consulting, on the statistics. In November 2005, already after the adoption of the new law, the number of bankruptcies with debt relief provisions decreased to 17,286 compared to 81,952 a year earlier.
The tightening of legislation played into the hands of banks that issue credit cards. They are the ones who suffer the most from individuals who do not repay previously taken loans. According to representatives of Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co, they lose up to several hundred million dollars quarterly due to the rise in bankruptcies. The banks expressed hope that with the tightening of legislation the number of bankruptcies will decrease.
Alexander POLIVANOV.
Газета.Ru