Tuesday, April 15, 2008

Bankruptcies Are On the Rise

Bankruptcies Are On The Rise

“In the past, many Chapter 13 debtors have been able to keep their homes through the use of repayment plans that stopped foreclosures or repossessions. However, the 2005 bankruptcy law changes imposed so many additional requirements and restrictions that Chapter 13 no longer is a practical way for many wage earners to save their houses from foreclosure, Mullin said. Also, the extra work required by the new law has caused the typical attorney's fee to double, putting it beyond the reach of most people. ‘The passage of the bankruptcy amendments in 2005 will without a doubt lead to many more foreclosures, distressed sales of real estate, neighborhoods going into decay and families shattered,’ Mullin said. ‘We are seeing only the tip of the iceberg at this time unless some changes in the bankruptcy law are passed to allow this valuable remedy to one again be efficiently offered.” http://globaleconomicanalysis.blogspot.com/2008/04/

Despite the recent passage of a revised bankruptcy law The Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005 which was virtually written for our Congress critters by the banks and credit card companies, bankruptcies are on the rise as the US economy unravels. Reflecting the tenuous financial predicament many AmeriKKKans find themselves, the law has not stopped people from filing for bankruptcy. The 2005 law was intended to discourage the rash of filings to get out from onerous debt. For a while it was working. Recent figures from the American Bankruptcy Institute reveal the number of bankruptcy filings both personal and business are skyrocketing. “An increase in March bankruptcy filings is another indication that the U.S. economy is in recession, led by states where the housing boom turned to bust. More than 90,000 bankruptcy filings were made in March, the highest since insolvency laws became more restrictive in October 2005, according to statistics compiled from court records by Jupiter ESources. Filings in March were 30% above the pace in 2007. California led the nation with a 42% increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter Esources. Rising bankruptcies, together with mounting foreclosures and fewer jobs, are further signs the biggest housing slump in a generation is hurting consumers and businesses. Federal Reserve Chairman Ben S. Bernanke this week for the first time acknowledged that the economy might be facing a recession and vowed to act to cushion the slowdown.” Bankruptcy filings jump 30% From Bloomberg News April 5, 2008 http://www.latimes.com/business
These figures, as alarming as they are, do not bode will for the rest of 2008 because economists and bankruptcy experts say there is a lag between six to nine months before a trend can be detected. One this is certain for 2008 and beyond, bankruptcies will continue to balloon. Things are predicted to be so bad, bankruptcy is now being touted as a growth industry! “The full impact of the nation's sliding economy is not reflected in the most-recent figures — that may take a few more months — and many lawyers believe there will be a lot of bankruptcy-related business up for grabs this year. ‘Nationally, people think that the No. 1 area of growth this year will be bankruptcy,’ said Carrie Titus, division director of Robert Half Legal, which provides legal staffing to law firms and corporate legal departments. The reason the increase is expected later this year is because the impact of bad economic developments doesn't translate immediately into a sharp hike in bankruptcy filings, said Jack Williams, scholar-in-residence for the Alexandria, Va.-based Bankruptcy Institute. He's also a bankruptcy professor at Georgia State University College of Law in Atlanta. ‘That spike generally lags about six to nine months behind the economy,’ Williams said. ‘Bankruptcy is a lagging economic indicator.’ Because of this, Williams predicted that the number of filings across the country, including business and individual cases, will rise to between 1.2 million and 1.4 million by the end of 2008. Most cases are filed by individuals.” From Bankruptcies The Number 1 Growth Area for 2008 http://globaleconomicanalysis.blogspot.com/2008/04/
This is just the beginning, the tip of the proverbial iceberg. In 2008 over 2 million adjustable rate mortgages are scheduled to reset to a higher rate forcing the borrowers to come up with additional cash at a time when the US dollar is being devalued almost daily and wages are actually in decline when you take monetary inflation into account. Theses borrowers are going to be hard pressed to meet the higher interest rates. Many will be forced to default on their loans. As more and more businesses downsize, go bankrupt or merge the US unemployment rate will increase forcing people to make very painful choices. As a result, bankruptcy rates are also going to shoot up because the US economy is down. “The unemployment rate rose from 4.8 to 5.1 percent in March, and non-farm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the past 3 months, payroll employment has declined by 232,000. In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs.” April report from the US Bureau of Labor Statistics (BLS).
To understand just how ominous conditions are, the US economy needs to generate 150,000 new jobs every month to keep pace with the population. Over the last three months the Us economy has lost 232,000 jobs! The unemployment figures are actually higher because the US Bureau of Labor Statistics routinely undercounts the jobless because they do not include people they call “discouraged workers”, those who have been out of work so long, they have given up looking for work.
The US economy is imploding but it need not be the end of the world. We can survive and thrive even in the midst of economic uncertainty. It will require making changes in our lifestyles being more savvy and discerning how we spend our money. If you have a job(s) be thankful. Remember the best way to make it through these difficult financial times is curb your spending, get out of debt and reorient your priorities.



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