Bankruptcy on the Rise – Why You Need the Hard Truth

August 27, 2008 by  
Filed under Budgeting, Debt and Credit

Bankruptcy Filings are Way Up Across the Board

In case you were wondering why you should be reading the hard truth on money and personal finance from Mr. ToughMoneyLove, you need only soak in the sobering news released today about U.S. bankruptcy filings:

Total filings rose to 967,831 from 751,056 for the period ending 6/30/1008, a 29% increase.

Chapter 7 filings rose 36% to 615,748.  (Chapter 7 is for individuals who are liquidating their assets.)

Chapter 13 filings rose 17% to 344,421 (Chapter 13 is for individuals who are on re-payment plans)

Businesses fared no better as Chapter 11 filings rose more than 30% to 7,293

Bankruptcy Reform Was No Deterrent

Keep in mind that these huge jumps came even after the bankruptcy laws were substantially amended in 2005 to make it harder for individuals to liquidate under Chapter 7.  Candidates McCain and Biden supported this change in the law.  Candidate Obama opposed it.  I suppose this doesn’t really matter because the change in the law clearly didn’t have its intended effect.  This proves once again that politicians know little or nothing about economics.

Folks, these numbers are shocking, sad, and pathetic, all at the same time.  Now more than ever, we need to pay more attention to doing the right things with our money and our financial planning.  You can start with watching out for warning signs of a normal financial life.

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10 Responses to “Bankruptcy on the Rise – Why You Need the Hard Truth”
  1. MasterPo says:

    Why should anyone be fiscally responsible? There’s no down side. No Deterance.

    Sure they will have a bad credit rating but so what? They can’t be denied a job, housing, food, insurance, travel, medicine, an education or training etc. Sure it may be a little more difficult to get and may cost more but there are plenty of sources still willing to provide it.

    You and I would be beside ourselves if we were late even a day on our bills. But for someone who lives the debt life style it’s no biggie. And there’s no punishment for living that way. They will never wake up and say “Oh heavens! What am I going to do today?!?!”

  2. I had a tour company. It was doing really poorly because of the tough financial times we are in. I decided to close the business. I could have filed for bankruptcy and taken little or no affect against my personal credit since it was a separate corporation however I chose to take on the debts personally. I believe in personal responsibility for actions. People don’t seem to realize this. Bankruptcy is the easy way out which too many people are using as their umbrella in case of hard times. It should only be used in the most dire of circumstances IMO.

  3. MasterPo, you’re quite right that there is virtually no downside. It’s also sad that bankruptcy is becoming so commonplace that there is minimal social stigma as well (unless you hang around the PF blogging world). If you’re over your head in debt, why not just wave that “get out of jail free” card?

    When I graduated from law school with big student debts, I actually considered bankruptcy from a purely theoretical perspective. I had no real assets and significant, unsecured debt, most of which was private and therefore would be wiped out in bankruptcy. Sure, my credit would have been screwed for 10 years, but that probably wouldn’t have affected my lifestyle any more than having a large portion of my income dedicated to debt repayment. It probably would have been a fairly logical decision, but my ethics and pride kept me from taking the plunge. Darn ethics…

  4. MasterPo says:

    MGL – There was a story earlier this year that made the rounds of several newspapers about a guy in California that has $90,000 in credit card debt. He said he isn’t even going to try to pay it off because he knows he can never do it. Not even try to work out a payment plan. He’s just not going to pay them and still keep using credit cards until they get taken away. Guess who’s ultimately going to pay for him?

    IMO he is a classic example of why there SHOULD be the old fashion “debtors prison”.

    What would be wrong with that? Theft is a crime! Right? If you buy something on credit knowing full well you have no hope of paying it off in a reasonable time frame (10 years to pay off a new pair of sneakers today isn’t reasonable IMO) is THEFT.

  5. Wise and MGL – My hat is off to you for doing the right thing with your financial obligations. We need more folks with money ethics.

    MGL – Now you know why federally guaranteed student loan debts are not dischargeable in U.S. bankruptcy courts – plenty of people would have headed straight there after graduation.

  6. MasterPo says:

    I’ll go one further and say that if you do declare bankruptcy then by law you should be banned from having a credit card for some period of years.

    If you just had to declare bankruptcy because of extreme debt why on Earth should you be allowed to immediately go back to a situation where you can start running up debt again?


  7. Bob says:

    Interesting how we agonize how horrible an individual is when he has to declare bankruptcy because he may have $50,000 in debts and lost his job…yet…we HAVE to use a TRILLION DOLLARS of his and mine and yours and our children’s tax payments to bail out those having high-paying jobs and lucrative retirements even when they all used the same formula [greed + bad decisions + market influences]

  8. Bob: I agree with your sentiments. I want to see the Wall Street greed-meisters lining up for Chapter 13 filings along with those they have ruined with their misguided actions.


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