Consumer and commercial bankruptcy filings are on pace to reach a stunning 1.5 million this year, according to a report from Automated Access to Court Electronic Records.Bankruptcy filings are apt to exceed the 2005 number eventually, given data like Jobs Contract 17th Straight Month; Unemployment Rate Soars to 9.4%.
While well below the record 2 million filings in 2005, the number of filings is up sharply from last year's 1.1 million, says Robert Lawless, professor of law at the University of Illinois.
Bankruptcy filings took a dramatic nose dive after a 2005 bankruptcy reform measure was signed into law to curb bankruptcy abuse and make it harder to erase debts.
"People are coming to us in much worse shape than they used to be," says David Jones, president of the non-profit Association of Independent Consumer Credit Counseling Agencies. "We used to be able to help 20% to 25% of people who came to us, and now we can only help 7% to 8%."
Last month, commercial filings hit 376 a day, up from 255 in May 2008. Hartmarx, which manufactures and markets apparel, and Silicon Graphics, a manufacturer of computer workstations and storage products, were among the filers.
The wave of corporate bankruptcies will cause a secondary wave in consumer filings, says John Pottow, University of Michigan bankruptcy law professor.
What set 2005 apart was Hurricane Katrina filers rushing to beat the deadline of Bush's Debt Slave Act officially known as the Bankruptcy Reform Act of 2005. One of the consequences of that act was banks lent with impunity to the worst credit risks thinking that debts could not easily be discharged in bankruptcy.
Those banks and other institutions that lent recklessly are now about to find out otherwise. Moreover, I expect walking away to start picking up steam as well.
Please see Walking Away Revisited for the Moral Dilemma that many are facing.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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