Bankruptcy Filings - 2008

According to some recent stats, both personal & corporate bankruptcy filings increased from 2007 to 2008. Bankruptcies seem to be rising in many states & some people think that the numbers will only continue to rise in the immediate future...

In fact, in 2008, the number of bankruptcy filings is expected to exceed 1 Million! One of the more common reasons that some people file for bankruptcy are large medical bills that can't be easily paid back. Another common reason is the loss of a job. And finally, unsecured debt, like credit card debt, can get very large, very quickly, if not properly managed.

Furthermore, as many consumers have recently discovered, debt levels become unmanageable when they are the result of large increases in fixed expenses. If more money goes out than comes in every month, debt levels can become difficult to manage.

For instance, imagine a hypothetical consumer who signed up for an adjustable rate mortgage in 2005. If that consumer's mortgage payment was originally $1500 per month & it readjusts to $2700 per month, where will the $1200 difference be made up? If that particular consumer doesn't get a substantial raise to cover the difference, how can the increased amount be paid every month? The extra $1200/month has to come from somewhere....With current U.S. savings rate at 0%, is it realistic to think that people will be able to come up with the extra amount every month?

During the 1990s, some banks started extending generous credit lines to consumers through credit cards. Credit was easy to get & consumers used credit cards to purchase just about everything imaginable. The added reward points & bonus' made credit cards very convenient for a lot of consumers. Credit cards can make life easier for a lot of consumers because they make it easy to manage and track expenses.

However, as stated above, principal amounts & fees can compound very quickly if they are not paid off.

Nationwide, courts are seeing double digit increases in the number of people filing for bankruptcy protection. And, not surprisingly, bankruptcy filings are reported to have increased substantially in many states that experienced both the "housing bubble" & the resulting wave of foreclosures...Arizona, California, Florida & Nevada are four states that have seen double digit increases in the number of bankruptcy filings from 2007 to 2008.

Furthermore, according to some statistics, while some costs have increased recently, incomes have not kept up with increased expenses. Especially energy costs. Take a look at the latest gas or power rates. According to the latest BLS.gov CPI stats, energy costs have been increasing more than 15% per year for the last 6 years at least! Have incomes increased enough to match the increased expenses?

Probably not.

So, are expenses that over run incomes the reason why so many more people are filing for bankruptcy protection? These are not easy questions to answer today, given the apparent contradictions in both inflation and deflation, not to mention many other factors that aren't easily identifiable.

However, more people are apparently filing for bankruptcy protection & some experts think that the trend may continue.