Post Reform: Bankruptcy Rates Still Rising

The bankruptcy reform legislation that went into effect on October 17, 2006 created a flood of bankruptcy filings last year. Bankruptcy filings increase by 31 in 2005 with one in every 53 households filing for bankruptcy. Less than 2 of all 2005 bankruptcy filings came after the new bankrutpcy laws were enacted. Nearly half of a million people filed in the rush to beat the new law last October. In the past this figure would have been in excess of previous quarterly amounts. Many experts expected that after such a large influx of filings, the number of people declaring bankruptcy would dwindle after the law change. Currently, the number of bankruptcy declarations only amount to 38 of the 2005 average monthly filings. With that being said, the bankruptcy rate has increased by 363 since November of 2005. While nobody knows if the steady rise in the bankruptcy rate will continue, there appears to be sign of it slowing down.Most of the reasons for people continuing to file bankruptcy are the same as they also have been. People still endure unexpected job losses, uncontrollable medical expenses, unforeseen deaths, and encumbersome divorces. In addition to these traditional precursors to bankruptcy, there are new forces in play that are pulling people into bankruptcy. One such force that has recently entered the fray is the adjustable rate mortgages (ARM). An ARM can lead to unexpected expenditure increases. When coupled with rising escrow balances the situation can be truly devastating. Recent studies show that the percentage of past due home loans that are ARMs is largely disproportionate when compared to the percent of all mortgages that are ARMs. In addition to ARMs, recent interest rate increases are making it more difficult to fulfill obligations on a loan. Most experts agree that at least one more interest rate increase will occur before they begin to fall again. Gasoline and heating oil expenses are also growing more burdensome for consumers as the price of oil skyrockets. The combination of these forces push people to the edge of their financial stability leaving them with no other option than to file bankruptcy. Perhaps this is the reason that one in sixty households in the United States filed for bankruptcy in 2005. Unfortunately most of these issues are unavoidable and can not be planned for.Consumers are also bearing the burden of the lending industry's credit skyrocketing. Their increased credit has freed up money allowing for them to lend to expand their market to include lending to individuals whose ability to pay may be questionable. This seizes market share but increases the number of failed loans and spreads the burden of those failed loans to all paying consumers. According to credit experts the amount of past due credit card debt has quadrupled since 1990.Inadequate insurance or the complete absence of insurance is becoming increasingly common. When coupled with the fact that medical insurance has been steadily rising faster than the cost of living adjustment the situation becomes dire. The number families without health insurance has increased by as much as 15 over the past six years in certain segments of the population. The Census Bureau reports that the number people uninsured has skyrocketed to 45 million. Given this trend, it is not surprising that a recent Harvard study found that medical bills were a factor in 50 of all consumer bankruptcies. Credit card companies have been experimenting with their interest rates for years. Some companies today employ penalty rates that can rise above 30. These penalty rates can be triggered by a single late payment. What is even more unfair is that certain companies will not reduce your rate once payment has been received. They will only reduce the rates once you have paid several consecutive payments on time. A consistent undertone behind the rising bankruptcy rate is the financial illiteracy. Credit card debt is becoming more prevalent. Living beyond your means has become fashionable. We've come a long way from the days of the depression when cash was all there was and your purchasing power was determined by the amount of cash you had in your pocket. With the increased credit limits and foregoing of well rounded personal finance knowledge it is of no great surprise that people have start to grow accustomed to luxury and not necessity.

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