-- The sagging economy sparked 106,266 consumer bankruptcy filings in October, the first time monthly filings topped 100,000 since the bankruptcy law changed in 2005, the American Bankruptcy Institute said Tuesday.
During the first year after the new law took effect, personal bankruptcy filings plummeted dramatically, and since then, have risen gradually. In October, though, filings jumped 40% over the same month in 2007.
For the year, bankruptcy filings are expected to exceed 1 million.
"This underscores that the underlying economic problems of consumers who are facing high debts, flat incomes and now declining home values are a very powerful force that pushes people over the edge," says Samuel Gerdano, ABI executive director.
The new law had two goals — reducing filings overall and encouraging more consumers to file under Chapter 13, which requires debtors to repay creditors using a schedule established by the courts. Chapter 7 bankruptcy eliminates most debts. The new law also requires debtors to undergo credit counseling before they can seek bankruptcy court protection.
Until recently, the law seemed to accomplish those goals. Now, filings are not only rising rapidly, they're reverting to the traditionally higher rate for Chapter 7 bankruptcy filings, Gerdano says.
Now that home values are falling, many debt-laden consumers have few options. They can no longer rely on home-equity loans, for example.
So far this year, consumers have filed more than 880,000 bankruptcy petitions, eclipsing 822,000, the total for all of last year, the non-profit education and research group said. ABI used data from the National Bankruptcy Research Center in its report.
The agencies that provide pre-bankruptcy credit counseling have seen a dramatic jump in business.
"We've seen a marked increase," says Mitchell Allen, at Debt Education and Certification Foundation, which provides credit-counseling service nationwide. "Nov. 3 was our biggest day ever. We see an uptick in people who are trying to save their homes from foreclosure."