Analysts: 2007 Bankruptcy Filings Up In U.S.

Washington, D.C. (AHN) - Even if a law was passed in 2005 making it more difficult and costly to file for personal bankruptcy, more Americans are opting for Chapter 13 than Chapter 7 or destitution filings.

Chapter 13 filings, which restructures debts, reached 822,590 in 2007, a 38 percent increase from 2006 levels. It has been a last resort for deeply indebted U.S. consumers to avoid foreclosure on their properties acquired through credit.

The rise in number of heavily indebted Americans, a result of a deadly combination of credit card purchases, home mortgages and auto and student loans, reflect how badly battered financially is the American economy with many residents owing more than their ability to pay.

Elizabeth Warren, a bankruptcy expert and Harvard Law School professor, said the high bankruptcy cases was an event that had built up over the years. "It's about the fundamentals. It's about declining wages, rising costs, inadequate health insurance and job instability. More hardworking middle-class families simply can't make it in this economy, and it's only getting worse," Warren told the Washington Post.

Bankruptcy filers now came from all levels of the American society unlike in the past when bankruptcies were associated with people who underwent sudden life changes like divorce, ailment or unemployment. Today the average bankruptcy filer is someone who incurred so many debts.

Peter Morici, economist at the University of Maryland at College Park, added, quoted by the Washington Post, "Americans have been spending 105 percent of their income for the last three or four years. That's not sustainable."

It is not just individuals who are filing for bankruptcies. Even local governments also do. The latest to file for bankruptcy protection was the city of Vallejo in California, which has a huge and growing budget deficit causing by rising payroll costs and dipping revenues from taxes.

Vallejo officials Friday filed for Chapter 9 bankruptcy protection with a federal court in Sacramento. Mayor Osby Davis explained to AP, "We've exhausted all avenues at this point, and this is all we had left... I had hoped to avoid it all the way up until yesterday. It's something we can't avoid... We can't pay our bills."

Vallejo requested the court for a June 9 deadline for all its creditors to challenge the filing. Lack of objection to the city's filing would grant Vallejo automatic bankruptcy protection, according to Marc Levinson, the city's bankruptcy attorney.