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Filing bankruptcy during economic shortfall

Filing bankruptcy is associated with a social stigma. This makes bankruptcy filings even more difficult. The probable reasons for filing bankruptcy include unemployment, increasing insurance costs, medical emergencies, mortgage debt and credit card debts etc. However, as per the prevailing market conditions, liquidity crunch is a prominent cause of filing bankruptcy. The number of people filing bankruptcy is on the rise and is expected to escalate in 2009.

Due to the liquidity crunch, people don’t have cash at their disposal. As such they are using credit card for meeting their basic needs too. Since the credit card companies have changed payment policies and reduced credit limits, the credit cardholders were not notified about the same. This created a lot of confusion among the credit cardholders. Majority of the credit cardholders were taken by surprise when they received their credit card statements.

When enquired, the credit card issuers stated that the change in the payment policies as well as lowering of the credit limits had to be implemented as a safety net to save them from further financial loss. As consumers found themselves getting deeper into debt, they find no other alternative but to file bankruptcy.

Due to increase in the number of bankruptcy filings, new federal bankruptcy laws were introduced in October 2005 to put a check on the number of people filing bankruptcy. However, the subprime mortgage crisis and the subsequent recession left consumers with no other option but to file bankruptcy.

Although the new federal laws were introduced, it failed to minimize the incidence of bankruptcy filings. The economic shortfall has left consumers in financial distress.

Statistical data showing projected bankruptcy filings for 2009

  • Financial experts are of the opinion that the lower limit of bankruptcy filings will be 5,075 for every business day. As there are 250 business days in 2009, the number of bankruptcy filings may be 1,260,000. This figure is computed assuming that there will be no further growth in the rate of filing bankruptcy.
  • However, it has been observed that rate of bankruptcy filings have escalated by 54% over the last 18 months. So, if we set an upper limit for bankruptcy filings in 2009, it shouldn’t exceed 7,600 bankruptcy filings per day. This comes to around 1,610,000 filings in 2009.

It is a fact that even of the bankruptcy filings in 2009 doesn’t exceed the upper limit; it won’t be before early 2011 or end 2010, when the economy will finally turn around to be referred to as a stable one.

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