Bankruptcies, 2009-2010
CNN Money reported that in the third quarter of 2009, the total number of bankruptcies filed spiked up 33%, the highest level since 2005, when 2,078,415 were filed before Congress amended the Bankruptcy Code. “The American Bankruptcy Institute, an industry research firm, said 388,485 bankruptcies were filed during the last quarter, compared to 292,291 filed during the same period in 2008, according to data released by the Administrative Office of the U.S. Courts. Filings for the first nine months of the year climbed 35% to 1,100,035, compared to 841,496 filings during the same period in 2008. A total of 1,117,771 bankruptcies were filed last year.” The ABI report included these details as of 2009, Q3:
• During the last quarter of 2009, personal bankruptcies increased 33% to 373,308, with a 42% rise in Chapter 7 filings, totaling 265,721, and Chapter 13 filings rose 15% to 107,142. During the twelve-month period ending Sept. 30, 2009, total filings increased more than 34% to 1,402,816, compared to 1,042,993 in the same period of 2008.
• In the third quarter of 2009, business bankruptcy filings rose 32% to 15,177. Filings for the first three quarters of the year totaled 45,510, topping the total 43,546 business bankruptcies filed in all of 2008.
Reuters’ January 5, 2010, report on global consumer and business bankruptcies was equally bleak. They found 89,402 bankruptcy filings by businesses in 209, compared with 64,584 the previous year, and personal bankruptcies increasing to 1,357,565 in 2009, from 1,031,562 in 2008.
The Role of Consumer Debt and Unemployment
• The ABI also reported that consumer debt is consistent with bankruptcy filings, with the Federal Reserve indicating a record high ratio of household debt to disposable income in 2008. The chart of these data shows the 2005 spike in both debt and bankruptcy filings, with a sharp drop in 2006 but dishearteningly steady growth in consumer bankruptcy filings since then. Although the ABI shows complete statistics only through 2008, analysts predict that the continuing high unemployment rate will cause personal bankruptcies to grow through 2010. “While only 37.6% of consumers who filed for bankruptcy in 2008 attributed job loss, Leslie Linfield [executive director of the Institute for Financial Literacy] expects that number to rise significantly for 2009. ‘At the end of last year, unemployment hadn’t crept up as high as it is now,’ Linfield said.” Long-term unemployment, those out of work for 27 or more weeks, is at 5.4 million nation-wide and rising, nearly doubling the previous high of 2.8 million in 1983. Animated maps showing the growth of unemployment from January, 2007, through Q4, 2009 can be viewed on American Observer and Slate.
Societal Effects of Bankruptcies and Excessive Debt
MyBudget360.com expects that Q1 of 2010 will provide clear indicators of the direction of the economy as reflected in various measurements, but the picture for 2009 showed these statistics:
• US food stamp participation was at 36 million in July, 2009, from a low of 26 million in July, 2005.
• Foreclosure filings reached nearly 1.1 million in Q3 of 2009.
• Revolving credit has contracted for the first time in the history of credit data tracking. This means that just when more citizens need more financial support, credit card companies are terminating lines of credit and charging higher fees to customers in good standing, to compensate for the credit card companies’ own errors in judgment that had led them to offer too-easy financing to non-credit-worthy consumers.
Although we can’t rewrite the past, we can—and must—learn from it. Here at Sealund & Associates, we’re proud to be participating in the Real Economic Impact Tour’s nation-wide efforts to improve consumers’ financial literacy and in Florida Governor Charlie Crist’s Small Business Summit to build the small businesses that will boost employment and help our entrepreneurs and their employees increase financial stability for our citizens.
Are you involved with financial stability initiatives in your community? Let us know, so we can help spread the word.
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