WASHINGTON -- Bankruptcy filings by
American consumers and businesses soared 38 percent in 2007 to
a total of 850,912, the Administrative Office of the U.S.
Courts said on Tuesday.
Some legal experts have said they expect an even steeper
rise in 2008 bankruptcies because of the subprime mortgage
crisis that is forcing growing numbers of homeowners into
foreclosure.
In 2006, there were 617,660 bankruptcy filings, according
to the agency that compiles data from federal courts across the
United States.
The vast majority of the 2007 filings — 822,590 of them —
involved individuals. However, business bankruptcy cases also
rose, jumping 44 percent to 28,322 filings, the court office
said.
A spokeswoman for the administrative office declined to
comment on the rise in filings.
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"It looks pretty clear that we will have more than 1
million bankruptcy filings by consumers in 2008," said Samuel
Gerdano, executive director of the nonpartisan American
Bankruptcy Institute.
"Consumers are laboring under a heavy burden of both credit
card debt and home mortgage debt. People are concerned about
their economic future and shaken by the inability to rely on
their homes as a backstop," Gerdano said. "That all adds up to
a continued rising trend in personal bankruptcies."
The all-time high occurred in 2005 with more than 2 million
bankruptcy filings just before the federal bankruptcy law was
reformed to make it more difficult for consumers to discharge
their debt under Chapter 7 of the law.
The reforms also
increased debt payments required under Chapter 13 filings and
eliminated some protections such as delaying housing evictions
or delaying child support proceedings.
Some Democrats in Congress are pushing for another change
in the federal bankruptcy law to help stop the rising number of
home foreclosures. The legislation, which is opposed by
Republicans and the banking industry, would allow bankruptcy
judges to reduce mortgage amounts to reflect the current fair
value of a home in Chapter 13 proceedings.
Under current Chapter 13 bankruptcy law, a judge may
restructure most of a consumer's loans ranging from credit
cards to car payments, but may not modify a secured debt such
as a home mortgage.
Bankruptcy filings made under Chapter 7 allow a consumer or
business to liquidate assets to pay off creditors. Chapter 11
filings are made by companies seeking to reorganize and pay
debts while staying in business.
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