In my law office, I've been helping an increasing number of clients with bankruptcy. It seems that the economic recovery effort has not slowed consumer bankruptcy filings. According to national data, they surged 14% in February compared with last year. The 111,693 cases filed in February also represented a 9% increase from January.
It seems that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which - if approved - allows a court to discharge most unsecured consumer debt, including credit card bills.
When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years. Yet the number of Chapter 13 filings decreased 3% last month. People generally file for Chapter 13 to try to save their home.
Before the housing crisis, financially strapped consumers could often avoid bankruptcy by tapping the rising value of their homes and taking out home equity loans. People have borrowed money to avoid filing for bankruptcy, when consumer credit tightens up, as we've seen, that tends increase the bankruptcy filing rate.
Business bankruptcy filings are rising, too. In February, there were 6,557 business filings, compared with 6,390 a year earlier, this trend could continue, but it's worth noting that business bankruptcies represent fewer than 10% of total filings.
Last year, there were 1.47 million bankruptcy filings, up 32% from 2008, Chapter 7 filings rose 41% in 2009, while Chapter 13 filings were up just 12%.
In light of this data, I thought it might be good to look at a few simple tips to help one avoid bankruptcy, as preventing the risk factors that lead toward bankruptcy is always advisable. Though remember, no matter what your personal financial circumstances, I'm here to help and something can always be done to resolve your situation, no matter how dire it may seem.
Tips for avoiding bankruptcy:
- · Don't bite off more than you can chew. Make decisions that are in the best interest of your own personal finances not decisions that may make you happy momentarily. Look at the long-term consequences of any actions you take. Get expert advice, if you're not certain about certain decisions.
- · Pay off your bill. It's okay to buy things with a credit card, but every time you make a purchase, put away the amount of that purchase in a safe place and pay the bill in full each month.
- · Go for the oxygen mask. Remember what the flight attendant says at the beginning of each flight. Put on your own oxygen mask first. If you need help get it immediately, don't get distracted.
- · Downsize. Get housemates, bring in lunch instead of going out, host potluck dinners.
- · Don't wallow in guilt. If you have to declare bankruptcy, don't take it personally, remember you are not the bankruptcy; you are not the business. You move through them. Take this time to reinvent and move forward with a clean start and a fresh, new creative outlook, being totally open to new opportunities waiting for you to say 'yes' to them.