Going Bankrupt - An Epidemic of Financial Failure in America

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Posted on November 4, 2008
Filed Under Debt Consolidation, Avoid Bankruptcy, Business Bankruptcy, Chapert 11, Chapter 13, Blog Carnivals |

Americans are going bankrupt at an extraordinary rate. According to the American Bankruptcy Institute, Baby Boomers are filing bankruptcy more than any other group. The ABI gathered data from courts and public records to track bankruptcy filings. The study revealed the percentage of U.S. citizens over the age of 45 who filed for bankruptcy protection increased nearly 30-percent over the past eight years.

The percentage of people going bankrupt rose by nearly 70-percent in 2007. Experts predict an unprecedented record of nearly 1.5 million bankruptcy filings by the end of 2008. Predictions for 2009 are even gloomier, with an anticipated 4.5 million Americans filing for bankruptcy protection.

Economists relate the sharp increase in bankruptcy filings to the mortgage crisis. A large percentage of homeowners with subprime and adjustable-rate mortgages can no longer meet their mortgage obligations.

The decline in home values and instability within the credit industry has all but eliminated the potential for homeowners to use the equity in their home to consolidate debts. Homeowners unable to afford their mortgage payments or obtain home equity loans are being forced into bankruptcy in an effort to save their home from foreclosure.

Additionally, the failure of Fannie Mae and Freddie Mac set off a landslide of consumer panic. Numerous businesses are closing their doors, unemployment rates are skyrocketing, consumer spending has reached an all-time low and bankruptcy filings are going through the roof.

Homeowners who can no longer afford monthly mortgage payments and unable to refinance or obtain a second mortgage are forced into going bankrupt. Part of the problem stems from new bankruptcy laws enacted in 2005, which made filing for bankruptcy protection considerably more difficult and costly.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was created to prevent consumers from filing for bankruptcy protection caused by frivolous spending habits. Prior to BAPCPA, the majority of consumers filed for Chapter 7. This bankruptcy chapter allows for liquidation of assets and provides debtors with the opportunity for a fresh financial start.

Today, consumers must undergo credit counseling and submit to the ‘means’ test; a tool used to determine the state median income level. Depending on where the debtor falls on the ‘means’ test scale determines how much of their outstanding debts they must repay.

If debtors fall below their states’ median income level they might be allowed to file for Chapter 7 bankruptcy protection. Otherwise, they will be forced into filing Chapter 13 and adhere to a strict repayment which typically lasts for three to five years.

A large percentage of the debtor’s disposable income must be contributed to the repayment plan. In many cases, debtors are unable to adhere to the plan and end up failing out of bankruptcy. When this occurs, the bankruptcy court can elect to allow the debtor to file for Chapter 7 or dismiss their case altogether.

Going bankrupt is never a happy event. It can be stressful and emotionally draining. However, it is important to realize there is life after bankruptcy. It is also important to retain a positive outlook and search for options and solutions to overcome financial hardships.

If you haven’t already done so, now is a good time to thoroughly review your financial situation and determine what went wrong and how you can prevent it in the future.

Simon Volkov is a private investor who offers solutions to people who are going bankrupt. He specializes in foreclosures, probate, promissory notes and bankruptcy alternatives. If you are considering personal bankruptcy visit http://www.SimonVolkov.com today and discover options you may not know existed!

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