Sunday, January 24, 2010

Bankruptcies in New York Increase 21% in 2009

The number of New Yorkers filing bankruptcy has spiked 21 percent in the first half of 2009 -- a clear indication that the still weak job market will continue to hamper a consumer spending revival and weaken the recovery now underway.

In all, 22,014 persons throughout the state were forced to seek court-protected safety after running up too much debt -- some were forced to file after attempting for years to right their fiscal situation on their own, which shows just how stubborn this recession is.

Manhattan resident Gail S., who did not give her full name because of privacy concerns, struggled for six months before filing for Chapter 7 in March. The 37-year-old was undone by $12,000 in debt.

Chapter 7 allows debtors to wipe away unsecured debt, like that from credit cards, and differs from Chapter 13, which restructures debt and puts debtors on a repayment plan.

Changes in bankruptcy laws are not working as planned

The 2005 change in the federal bankruptcy law was aimed at making it more difficult for folks to wipe out their debts -- however, the great recession has made those moves largely irrelevant.
Of all the New Yorkers to file bankruptcy in the first half of 2009, 75 percent went Chapter 7.

"The bankruptcy law change in 2005 didn't do anything to change people's underlying financial conditions," said Bob Lawless, a professor of law at the University of Illinois College of Law and co-author of a 2008 study which found that the law change has been a failure.

National bankruptcy filings expected to reach 1.5 Million in 2009

Nationally, there has been an 82 percent jump in personal bankruptcy filings -- which experts believe will reach 1.5 million this year, a return to pre-2005 levels.

Here's what ordinary people in bankruptcy or near filing for help are coping with:

* Higher debt levels than ever before. The typical bankrupt person had total debts of $87,300 in 2007, a stunning rise from the $47,400 in debts logged back in 1981, according to the American Bankruptcy Law Journal last year.
* Flat income that cannot keep pace with debts. Median household income for bankrupt debtors was $27,100 in 2007, essentially the same as 2001 and 1991 levels.
* Higher debt-to-income ratios than ever before. As of 2007, it would take the typical bankrupt person 3.3 years to pay off all their debts -- compared to 1.4 years in 1981.
* Drawn out struggles to avoid reorganization, which translates into more fees for creditors from embattled debtors. The number of debtors waiting more than two years to file hit 43.8 percent in 2007, up from 32.6 percent in 2001 before the law changed.

Manhattan lawyer Mark Jay Heller, of Heller & Heller, said his roster of bankruptcy cases has skyrocketed 65 percent this year, but half his clients cannot afford the legal and court fees.

Source: www.nypost.com/seven/08232009/business/filings_threaten_recovery_186114.htm

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