The Detroit News ran a great story yesterday on how the dismal economy is bringing more consumers than ever to file for liquidation bankruptcy. Because so many people are underwater on their homes, and owe more than they are worth, the number of Chapter 7 Bankruptcies has skyrocketed. As Detroit News reporter Jaclyn Trop writes, in the Eastern District of Michigan, “Chapter 7 filings for individuals, which liquidate a debtor’s property and convert it to cash for creditors, increased by more than 25 percent in the first three quarters of 2008 compared with the entire 12 months of 2007.”
As more people turn in their keys so that their home may be liquidated and sold off to pay for their debts, the stigma of filing for bankruptcy is fading. Instead of being seen as a sign of personal irresponsibility, bankruptcy is seen as many consumers’ only chance to combat mounting debt.
This is especially true in hard-hit areas of the country like Michigan, where unemployment has reached 11.6% of the population. As jobs evaporate, consumers are forced to get creative about how to settle their debt. Filing for bankruptcy is the legally-sanctioned method for escaping from mounting credit charges. Although it’s certainly not a fun process, filing for bankruptcy is a way to start over with a clean slate.
It’s important that Chapter 7 bankruptcies are on the rise, because in this type of bankruptcy the consumer basically sells all of his or her assets to go toward paying lenders. In contrast, those who file for Chapter 11 hope to reorganize and renegotiate debt to emerge from bankruptcy with some of their assets intact. (Chapter 11 is often filed by businesses who hope to continue doing business in the long term.)
One issue many new bankruptcy filers may not be aware of is how to rebuild credit following a bankruptcy. Chapter 7 bankruptcy stays on financial and legal records for 10 years, making post-bankruptcy lenders especially wary. If you’ve filed for bankruptcy, you should be careful to establish good spending and saving habits afterwords. It’s also a good idea to rebuild credit. One way to do this is to take out a loan for a big item, like a house or car. Bankruptcy Resource Group is a great resource for securing a car loan following a bankruptcy. BRG has spent years compiling a nationwide network of auto dealers who specialize in lending to people who have survived a bankruptcy. Contact Bankruptcy Resource Group today to learn more.
Top photo by WalkinBoston.
To wrap up our series on when, how, and why to adjust the amount withheld from your taxes, here’s a list of major life experiences which justify a review of your w4.
