U.S. consumer bankruptcies rose by about one third in 2009, to 1. 4 million–nailing the number predicted earlier that year by American Bankruptcy Institute’s Sam Gerdano. He cited job losses, high debt burdens and “unsustainable mortgage burdens” as the leading factors in the 32 percent increase in filings.
It’s fair to say at this point that Congress’ effort to reform the bankruptcy system is a big old failure. The 2005 law’s most significant effects were to drive up filing costs and filings themselves in the months before the law took effect. After a brief lull following the law’s inception, cases started marching upward again.
The law failed because it addressed only one side of the equation, borrowers, without regard to the excesses of lenders. Those excesses have been temporarily trimmed by the Great Recession and to a smaller but perhaps more permanent extent by the credit card reform act. The only thing that’s clear at this point is that the great wave of bankruptcy filings is unlikely to crest any time soon: filings in December were up 33% compared to a year earlier.
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