Susan Laskowski is one of a growing number of Americans who have declared bankruptcy.
Laskowski, a teacher who lives in Santa Fe, N.M., decided to declare Chapter 7 bankruptcy last October after racking up $80,000 on credit cards she used to help pay for moving costs, living expenses and doctor bills over the previous 12 years.
Now almost a year later, Laskowski is back on her feet, making a salary of $48,000. She has just one Mastercard bill she says she uses in emergencies, two outstanding store loans that she did not claim in her bankruptcy, and a car and a house payment.
"I'm generally a responsible person," she says. "But I just got in over my head."
And she's not alone. The total number of bankruptcies in the year ended June 30 hit over 1.5 million — the largest number of cases ever filed in any 12-month period and the first time they have ever totaled more than 1.5 million, according to the Administrative Office of the U.S. Courts, which handles federal bankruptcy filings.
Of that total, some 1.47 million were personal bankruptcies, up 8.6 percent from the same period the previous year.
Bankruptcy experts say the jump in bankruptcies is not a shock given the slumping economy, rising unemployment and lackluster stock market, along with a steadily increasing diet of debt indulged in by many Americans.
"I'm not surprised," says Elizabeth Warren, a professor of law at Harvard Law School who specializes in bankruptcy. "For many Americans, these are uncertain economic times."
No Assets, No Payments
The record bankruptcy levels come at a time when the government is considering controversial new laws making it more difficult for consumers to file for bankruptcy.
When Congress convenes in September, it is expected to consider a bill that among other provisions would impose a means test on debtors and possibly require them to pay back some or all of their debts if their income met a certain level, effectively forcing them from Chapter 7 into Chapter 13 bankruptcy.
In a Chapter 7 bankruptcy, most of a person's debts are cancelled, but the debtor might have to give up some of his or her property to creditors. What is and is not exempt from creditors differs from state to state. Some states, for example, allow people to exempt their homes from bankruptcy filings.
Conversely, debtors usually cannot get out of paying back certain types of loans, which depending on the state can include school loans or alimony payments.
Chapter 13 bankruptcy, by contrast, allows individuals whose debt does not exceed certain amounts to pay off their creditors in whole or in part using a payment plan.
Some experts suspect the jump in bankruptcies might be due to people wishing to get their claims filed before a bill potentially got passed into law.
"This could be prodding people who are in financial trouble who may have talked to a lawyer to file now," says David Skeel professor of law at the University of Pennsylvania Law School in Philadelphia and author of Debts Dominion: A History of Bankruptcy in America.
Stigma Is Slipping
Experts say Chapter 7 filings are more common because many of the people who file for bankruptcy are in such dire straits financially that they don't have anything to give to creditors. Of the 400,686 bankruptcy filings in the three-month period ended June 30, Chapter 7 represented 286,584 filings, while Chapter 13 accounted for 104,154 filings.
"You'll probably find that 80 percent are no asset cases," says G. Ray Warner, professor at the University of Missouri-Kansas City School of Law and scholar-in-residence at the American Bankruptcy Institute in Alexandria, Va.
"Most people that are filing these [no asset cases] are very poor," he says. "They have some clothing, they have some furniture. They may have a car but they only have $500 of equity in it. They probably don't have a house at all."
Another contributing factor is that the stigma of filing for bankruptcy seems to have decreased over the years, says Skeel. Although bankruptcy can stay on your credit report for up to 10 years and can hinder your ability to get new credit or insurance, Skeel says there are many companies willing to extend credit to someone who's filed for bankruptcy, often at rates not much higher than the norm.
"It used to be that it would be years before you could get credit," says Skeel. "That's not the reality any more."
Laskowski agrees: "It was an expensive lesson, but life goes on."