Sunday, June 28, 2009
The Los Angeles Times reports that personal bankruptcies are rising rapidly in the former housing bubble hotspot of Southern California, the chart below showing a 40+ percent increase from the levels seen late last year.
Apparently the combination of falling home prices, high debt levels, and rapidly rising unemployment (at 11.5 percent in May, statewide) have taken their toll on Angelenos' once overflowing balance sheets.
You have to wonder what took so long for bankruptcies to spike upward.
Bankruptcy experts attribute the growth mainly to the mortgage meltdown, which hit the region's adventuresome borrowers particularly hard. Add soaring credit card debt and medical expenses, and people who never thought they'd see a bankruptcy courtroom are lining up with petitions in hand.Lots of personal stories to tell about personal bankruptcies which is all a bit depressing, particularly since most of these people were riding high just a few years ago.
"California has been one of the biggest climbers in the filing rate in the last few years," said Robert Lawless, a law professor at the University of Illinois and contributor to the Consumer Bankruptcy Project, which examined how the 2005 bankruptcy overhaul affected filers. "I attribute a lot of that to the foreclosure problem."
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was designed to keep people who had the ability to pay debts from enjoying the benefits of bankruptcy. At the heart of the changes is a complex "means test" to analyze a person's ability to pay debts before being allowed to seek Chapter 7 bankruptcy protection, which along with Chapter 13 are the types most often used by individuals.
"Too many people have abused the bankruptcy laws," President George W. Bush said as he signed the measure into law. "They've walked away from debts even when they had the ability to repay them."
But Lawless, citing studies, said the revisions mainly confused legitimate filers and led to higher attorney fees.
"The effect was that people are arriving in Bankruptcy Court in worse financial shape," he said.