WASHINGTON (Reuters) - Bankruptcy filings by American consumers and businesses soared 38 percent in 2007 to a total of 850,912, the Administrative Office of the U.S. Courts said on Tuesday.
Some legal experts have said they expect an even steeper rise in 2008 bankruptcies because of the subprime mortgage crisis that is forcing growing numbers of homeowners into foreclosure.
In 2006, there were 617,660 bankruptcy filings, according to the agency that compiles data from federal courts across the United States.
The vast majority of the 2007 filings — 822,590 of them — involved individuals. However, business bankruptcy cases also rose, jumping 44 percent to 28,322 filings, the court office said.
A spokeswoman for the administrative office declined to comment on the rise in filings.
“It looks pretty clear that we will have more than 1 million bankruptcy filings by consumers in 2008,” said Samuel Gerdano, executive director of the nonpartisan American Bankruptcy Institute.
“Consumers are laboring under a heavy burden of both credit card debt and home mortgage debt. People are concerned about their economic future and shaken by the inability to rely on their homes as a backstop,” Gerdano said. “That all adds up to a continued rising trend in personal bankruptcies.”
The all-time high occurred in 2005 with more than 2 million bankruptcy filings just before the federal bankruptcy law was reformed to make it more difficult for consumers to discharge their debt under Chapter 7 of the law. The reforms also increased debt payments required under Chapter 13 filings and eliminated some protections such as delaying housing evictions or delaying child support proceedings.
Some Democrats in Congress are pushing for another change in the federal bankruptcy law to help stop the rising number of home foreclosures. The legislation, which is opposed by Republicans and the banking industry, would allow bankruptcy judges to reduce mortgage amounts to reflect the current fair value of a home in Chapter 13 proceedings.
Under current Chapter 13 bankruptcy law, a judge may restructure most of a consumer’s loans ranging from credit cards to car payments, but may not modify a secured debt such as a home mortgage.
Bankruptcy filings made under Chapter 7 allow a consumer or business to liquidate assets to pay off creditors. Chapter 11 filings are made by companies seeking to reorganize and pay debts while staying in business.
(by calendar year)
Year Business Non-business Total
* Data from Administrative Office of the U.S. Courts
Reporting by Julie Vorman; Editing by Jonathan Oatis