Did the 2005 Bankruptcy Laws Changes Work?
The 2005 change in the bankruptcy laws was supposed to slow down the rate at which people file for bankruptcy. It may have temporarily worked but as the numbers point out, bankruptcy filings are again racing towards an all-time high.
Bankruptcies surged to slightly more than 2 million in 2005 as many consumers rushed to file before the new Congressional laws took effect. After hitting their peak in 2005, bankruptcy filings then plummeted to 600,000 in 2006. Since 2006, bankruptcy filings have been steadily climbing. 2009 became the seventh-highest bankruptcy filing year on record, behind only the years 1998 and 2001-2005. With little let down in sight, 2010 seems to be a good bet to join the group. Can additional congressional tweaking of the nation’s bankruptcy laws be far behind?
There are no signs the bankruptcy filing numbers are going to decrease. All types of people are seeking relief by filing bankruptcy. It is not just limited to people with too much credit card or medical debt. Many of the individuals that have been filing bankruptcy are people with adjustable-rate mortgages, those who lost their jobs due to the housing downturn, and even wealthy individuals and business owners who have finally succumbed to lower incomes and shrinking property values.
For three years, filings have been steadily rising back toward levels reached early in the decade. These levels were reached prior to the Congressional overhaul of the nation’s bankruptcy laws. The 2005 alterations made bankruptcy filings merely more cumbersome, the individuals filing for bankruptcy had additional paperwork and proofs when filing for bankruptcy. These moves were prompted by fears from lenders that some consumers were abusing the system to wipe away debts.
Is the steady increase in bankruptcy filings simply a sign of the times or is it indicative of failures in the 2005 overhaul bill?
The 2005 spike had been preceded by a steady climb from 1.5 million in 2001 to 1.6 million in 2005. We are seeing a similar year by year increase in bankruptcy filings again at the end of the decade.
Did we really think that simply changing the laws in 2005 would make all the bankruptcies go away?
While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws, the numbers indicate clear correlations to recession-weary regions. Arizona saw the fastest increase, a jump of 77% from the year before, followed by Wyoming (60%), Nevada (59%) and California (58%).
While every state saw a rise in bankruptcies, Alaska (up only 12%), Nebraska (12%) and North Dakota (14%) performed best.
For more information about filing for Chapter 7 bankruptcy, Chapter 13 bankruptcy filing, bankruptcy planning or filing for bankruptcy, contact one of our bankruptcy lawyers and speak to any of our experienced attorneys in Phoenix, Chandler, Tucson, Glendale, Mesa, Flagstaff or anywhere in Arizona. Contact one of our regional offices. It’s time for a fresh start.