Personal bankruptcy filings climbed last month to their highest level since 2005, when Congress enacted laws aimed at discouraging such filings, and experts predicted more than a million Americans will seek bankruptcy protection this year.

The American Bankruptcy Institute, citing data from the National Bankruptcy Research Center, said 76,120 people filed for bankruptcy in February, a 15 percent increase from January. Business bankruptcies also surged, climbing to a four-month high of 4,326, according to Jupiter eSources, which tracks business and personal bankruptcy filings.

The numbers highlighted the rising toll of the U.S. housing slump and the credit crunch it precipitated. Those developments have brought the economy to the brink of recession and led to a surge in home foreclosures. In response, the U.S. central bank has cut interest rates at the fastest clip in more than two decades, but the economy has remained sluggish.

Samuel Gerdano, executive director of the ABI in Alexandria, Va., said Tuesday the institute expects personal bankruptcy filings to top 1 million in 2008. That would mark the highest number since 2005, when Congress enacted laws that made it harder for individuals to file for bankruptcy. Personal bankruptcy filings totaled 800,000 last year, a 40 percent increase from 2006, he said.

“I don’t see a problem reaching one million,” said consumer bankruptcy attorney Brian J. Small of Thav Gross Steinway & Bennett in Michigan. “I would be surprised if…we don’t exceed it.”

Small said home foreclosures have been “the leading impetus” for the increase in personal bankruptcy filings. That’s because by the time homeowners face foreclosure “they’ve already borrowed every penny that they could; they already spent everything in their savings. They’re at the point where there’s nothing left,” he said.

Lenders initiated about 1.5 million home foreclosures last year, up from an annual average of “fewer than 1 million” in the previous two years, Federal Reserve Chairman Ben Bernanke said in a speech Tuesday.

“This situation calls for a vigorous response,” Bernanke said. “Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy.

Small also said that his clients today have much greater debt than in the past. For example, he said he used to think that credit card debt in the range of $10,000 to $12,000 was high. Now, some clients are reporting credit card debt between $30,000 and $50,000.

“The proliferation of available credit, combined with the increase in mortgage interest rates, has stretched everyone to their maximum, and they’re going to break,” Small said.

As consumers tighten their pocketbooks, businesses — especially those that depend on consumer spending — will feel more pain, analysts said. Businesses already have been hurt by the global credit crunch, which is pushing a growing number of companies into bankruptcy and making it harder for others to emerge from bankruptcy.

“Commercial cases are very reliant on credit availability and so that’s where the credit crunch comes into play,” Gerdano said. “For several years, the wide availability of credit and almost excess liquidity really masked an underlying vulnerability of businesses.”

Associated Press

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