Personal Bankruptcy Filings Soar

Jan. 11, 2010— -- For nearly a decade, Gerard Young collected a six-figure salary as an account executive at an Orlando, Fla., public relations firm. But just over a year ago, as a recession raged and unemployment soared, Young lost his job and quickly found himself sinking into debt.

Three months ago, as creditors closed in on his home and car, Young filed for Chapter 7 bankruptcy in order to liquidate his assets to pay off some debts.

"You never really think it could happen to you," says Young, 46. "One day you're out shopping for a house and enjoying your life and then the next thing you know you're broke."

The worst U.S. recession in a generation is sending personal bankruptcy rates soaring.

The number of Americans filing for personal bankruptcy rose by nearly a third in 2009, largely fueled by foreclosures and job losses, according to new figures released by National Bankruptcy Research Center, which compiles and analyzes bankruptcy data.

The group says personal bankruptcy filings reached 1.41 million last year, up 32 percent from 2008. That's the highest level of consumer-bankruptcy filings since 2005. In December alone, 113,274 Americans filed for bankruptcy, a third higher than the same month a year earlier.

The findings also showed that Chapter 7 filings were up more than 42 percent as of November 2009, compared with the same period a year earlier. A Chapter 7 filing liquidates assets to pay off some debts and absolves the filers of others.

Filings for Chapter 13, under which a filer must have income to repay debt, rose by 12 percent and made up less than a third of 2009 filings as of November.

Bankruptcy analysts expect matters to worsen again this year as the deepest economic downturn since the Great Depression continues to work its way through U.S. households.

"A combination of economic stress, including high debt loads, rising unemployment and unsustainable mortgage burdens, left many consumers with little choice but to seek the financial relief of bankruptcy," Samuel J. Gerdano, executive director of the American Bankruptcy Institute, said.

Experts say the real estate bust and rising unemployment rates are forcing more people to file for bankruptcy. That's especially true for many middle-class Americans who may never have considered the option in the past.