Bankruptcies Increase by a Third in July 09
American bankruptcy numbers have arrived for July 2009 and the results aren’t good, but then again good news wasn’t expected. Total bankruptcy claims comparing July 2009 to July 2008 increased by 35%. The news certainly is correlated with the recent announcement of July 2009 unemployment data that saw the rate marginally decrease from June’s 9.5% to July’s 9.4%.
The increase in unemployment post-recession, coupled with the decrease of home equity, among other factors, has contributed significantly to the bankruptcy claim rate. The July total of 1,306,315 claims is in the middle of the pack when it comes to historic numbers (comparing the past five July’s).
While some seek positive numbers in the current economy, the bankruptcy numbers are not the place to look. Chapter 7 filings, the most common type for individuals, were up 47%.
Although 2009’s numbers are not the highest they’ve ever been, 05 and 06 remain the 1 and 2 respectively, it is a disturbing increase given the steady increase since 2007. The reason our data, and most data you’ll see, begins in 2005 is because the change in legislation in October 2005.
The alarming in crease in business bankruptcies includes small to high profile businesses and corporations who are not impervious to the credit crunch. Giants such as Lehman Bros., Freddie Mac, GM, and more recently Reader’s Digest, have or are facing the prospect of declaring bankruptcy.
Despite their dominance in the media, attributed to the sheer size of these companies, the percentage of business bankruptcies compared to individuals is small. Only about 2% of all bankruptcy claims are businesses–the vast majority are individuals. Chapter 11 filings, the most common type for businesses, were up 91%.
Cecilia Chen, a bankruptcy attorney currently practicing in San Diego, commented that the trend doesn’t appear to be slowing and clients may have a false idea of what bankruptcy entails.
We have noted an increase in bankruptcy clients, and also clients are are generally unprepared to deal with the process. For example, some clients come to the initial meeting with false beliefs that not every debt must be listed, not every asset must be disclosed, or that assets may be transferred before bankruptcy to place them beyond the reach of the trustee. Improper transfers may be deemed to constitute a fraud on creditors, thus exposing the client, and perhaps even an attorney who counseled the client to make the transfers, to punitive damages and even criminal prosecution.
When asked what was the best way for a small business or individual to start exploring the bankruptcy option Cecilia highlighted some important steps,
Avoid using credit cards as much as possible and be sure to not use credit cards to charge for luxury goods (vacations, jewelry, flat screen tvâ€™s) or take out cash advances within 3 months of filing; start collecting the necessary documents and information needed for me to prepare you bankruptcy petition and schedules, such as a list of assets, debts, and lawsuits, names and addresses of everyone you owe money to, pay stubs from the last six months, tax returns for the past two years, addresses and account numbers for all your bills and collection agencies, loan documents for both real estate and vehicles, as well as titles and registration for all vehicles owned.
Many clients may think that bankruptcy services are fungible and that perhaps they do not even need an attorney. Following the enactment of BAPCPA, however, the assistance of competent counsel is more important than ever before. It’s important to know that what debts are not dis-chargeable in bankruptcy and when is the right timing to file after taking into consideration of the income and payments made within a certain time period before filing.
Specifically in California, although in aggregate they have among the highest claims of any other state, that’s due to population. When we examine per capita data, we see that 2007 California was among the bottom third of claimant states, but have successively increased since with 5.5 fillings per 1000 people in 2009.
If you have been thinking of filing bankruptcy for some time now, then you have pondered upon several questions. Some of them would be, “What documents do I need to possess and what forms do I need to fill to file bankruptcy and protect my assets to the maximum extent”, “How long and how expensive is the process” and “Can I do it myself – an attorney might be too expensive”.
Since the 2005 amendment to the Bankruptcy Code with its requirement of the means test, people have believed it’s too difficult to now file for Chapter 7 bankruptcies. The fact is that most people who file for Chapter 7 bankruptcy have their median income below their state level due to their loss of job or divorce. It makes sense that the decline of the economy and the increase in the number of filings do positively correlate to each other regardless of the means test.