Personal Bankruptcies Hit a High and May Keep Rising

Time
April 5, 2010
O'Leary, Kevin

Bankruptcy filings hit a new high in March, surging 35 percent from February to 158,141, reports Automated Access to Court Records (AACER). While the expectation might have been for the worst to have passed in states slammed by the housing bubble, like Arizona and California, AACER President Mike Bickford says that is not the case. Law scholars were not surprised by the data. "Now, consumer credit has dried up," notes University of Illinois law professor Robert Lawless. "That is why people are ending up in bankruptcy court." Chapter 13 requires lenders to stop foreclosure and the borrower to commence regular mortgage payments; but given that Chapter 7 filings are outpacing Chapter 13 filings, experts believe more homeowners are simply walking away from their loans. "Chapter 13 was designed for regular economic times when people might lose their jobs and fall behind on their mortgage for three to four months, but having found a new job they would be able to use the Chapter 13 process to keep their homes," says bankruptcy expert Katherine M. Porter, who adds that consumers are walking away because judges operating under current bankruptcy law have no way to adjust loan terms to make them more manageable.
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