“The debt-stress overhang from years of consumer spending has a more acute impact now because of troubling economic times,” says Samuel Gerdano, American Bankruptcy Institute executive director.

And that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which — if approved — allows a court to discharge most unsecured consumer debt, including credit card bills.

When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years.

Yet the number of Chapter 13 filings decreased 3% last month from January, the American Bankruptcy Institute says.

“People generally file for Chapter 13 to try to save a home,” says Robert Lawless, professor of law at the University of Illinois.

Before the housing crisis, financially strapped consumers could often avoid bankruptcy by tapping the rising value of their homes and taking out home equity loans. “People have borrowed money to avoid filing for bankruptcy,” says Lawless. “When consumer credit tightens up, as we’ve seen, that does increase the (bankruptcy) filing rate.”

Business bankruptcy filings are rising, too. In February, there were 6,557 business filings, compared with 6,390 a year earlier, according to Automated Access to Court Electronic Records.

Gerdano expects that trend to continue, but he notes that business bankruptcies represent fewer than 10% of total filings.

Last year, there were 1.47 million bankruptcy filings, up 32% from 2008, according to data released by the Administrative Office of the U.S. Courts on Tuesday. Chapter 7 filings rose 41% in 2009, while Chapter 13 filings were up just 12%.

The bankruptcy rate has risen each year since the law was changed in 2005. “We are already on a faster pace in 2010 than we were a year ago,” Gerdano says. “Consumer filings will likely surpass 1.5 million filings this year.”

More bad news on the housing bust front: Nearly 25% of all mortgage borrowers were underwater, meaning they owe more on their loans than their homes are worth.

First American CoreLogic, the research firm that monitors housing equity, reported Tuesday that 11.3 million homeowners — or 24% of all homes with mortgages — were underwater as of the end of 2009. That’s up from 23% and 10.7 million borrowers three month earlier.

For many homeowners, being underwater, also known as negative equity has few consequences. If they’re not planning to sell and can afford their monthly bills, they can wait out the downturn.

For others, however, plunging underwater can spell disaster. If they become unemployed or have a financial emergency, they have no equity to tap. Or, if they need to downsize or sell their home to relocate for a job, they can’t.

If you can pay your bills, and take care of your family, and have no plans of leaving your home, having an underwater mortgage can be fixed with time and patience, when the economy improves.  For those who cannot pay their bills, or need to walk away from their house, bankruptcy may be an option.  A chapter 13 bankruptcy will allow you to payback any arrearages through the plan, and if that is no longer an option, a chapter 7 may be used to liquidate the debt. 

Bankruptcy filings in December 2009 topped 110,000 for the tenth straight month, for a 32% increase over last December’s total. The high number of December filings suggests an unusual seasonal pattern. December filings typically are much lower than November filings, but this year they were almost identical (even considering the relative number of days). Still, the trend in bankruptcy filings in recent months suggests that we have passed the peak of filings related to the economic crisis, and thus that 2010 filings will be lower than 2009 filings. Rolling three-month data (Figure 1) account for the seasonality in filing trends, but illustrate the comparatively higher filing patterns for 2009. For comparison, foreclosure data over the last three years reveal no comparable peak (Figure 2, based on data from the Mortgage Bankers Association).

With the December filings, the total for 2009 is above 1.4 million, a 32% increase over filings for 2008. Indeed, 2009 filings were the highest in any year since the 2005 bankruptcy reform bill.

The increase includes a marked upturn in the last year in Chapter 7 (liquidation) filings, which have increased by more than 42% as compared to this time last year, where Chapter 13 (rehabilitation) filings have increased by only 12%. The steadily declining share of Chapter 13 filings (less than 30% of 2009 filings to date) contrasts with the strong push by Congress in its 2005 bankruptcy legislation to encourage bankrupts to choose Chapter 13 rather than Chapter 7.

Nationwide, 2009 filings amounted to more than 12,000 filings per million households – about 1 in every 80 households. As Map 1 shows, the high filing rates are concentrated in two clusters: the Southwest and the Southeast. Interestingly, as Map 2 shows, the concentration of foreclosure proceedings is much different, with the highest concentrations clustered in the northern Midwest.

The states with the highest household-adjusted bankruptcy filing rates are Nevada (two-and-half times the national average), followed by Tennessee, Georgia, Alabama, and Indiana (with household-adjusted filing rates more than one and a half times the national average). More than one out of every six bankruptcy filings this year has occurred in one of those States, even though those States include only one in twelve American households. The lowest filing rates were in Alaska (less than a third of the national average), followed by the District of Columbia, North Dakota, South Carolina, and South Dakota (all far less than half the national average).

The States with the biggest increase in filings over the previous year were Arizona (an 80% jump) followed by Nevada, California, Wyoming, and Utah (all with increases of 55-60%). Although 2009 filings were higher than 2008 filings in all States, several States have experienced comparatively modest increases. The lowest increases (all about 12-14%) are in Nebraska, Pennsylvania, Alaska, and Tennessee.

At the county level, the counties with the highest filing rates (adjusting for households located in the county) were concentrated in Georgia. Seven of the ten counties with the highest filing rates were in Georgia, with the highest rate in the county occurring in Shelby County, Tennessee (Memphis), with a filing rate almost three times the national average. The second and third highest filing rates were in two counties east of Atlanta (Newton and Barrow), both with filing rates more than two and a half-times the national average.

On a national basis, 28% of all filings to date were under Chapter 13, the procedure most directly related to home-mortgage distress. Again, there was a substantial variation among the States on the prevalence of bankrupts seeking Chapter 13 relief. The States with the highest share of Chapter 13 filings (50% or more in each case) were concentrated in the South: Louisiana, Alabama, South Carolina, Tennessee, and Texas. At the other end of the spectrum were States with relatively low Chapter 13 shares. (The three lowest were New Mexico, Iowa, and West Virginia, all with less than 10% of their filings under Chapter 13.

This analysis was performed on data collected by the National Bankruptcy Research Center (NBKRC) by NBKRC contributor Professor Ronald Mann of the Columbia Law School.

A Decade Of Personal Bankruptcies: 1999-2009
Consumer filings dropped sharply after Congress overhauled bankruptcy laws in 2005 but have been on the rise since 2006.

Source: National Bankruptcy Research Center Credit: NPR
Personal bankruptcies rose more than 30 percent last year, with more than 1.4 million protection filings. Many middle-class Americans sought relief after losing jobs, seeing their businesses fail or facing foreclosure.
In 2005, Congress overhauled the nation’s bankruptcy laws with the intention of limiting the ability of many individuals to get rid of their debt — especially through the use of Chapter 7 of the bankruptcy code. But in this faltering economy, the law’s impact has been limited.
In fact, far more people are now using Chapter 7 — in which assets are sold to pay off debts and what can’t be paid is absolved — instead of Chapter 13. In a Chapter 13 bankruptcy filing, an individual signs up for a time-limited repayment plan and, in return, gets to keep certain assets. Creditors often get more money in Chapter 13 filings.

Expedited Bankruptcy Filings Request

Consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home. The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation’s consumer reporting companies.Some financial advisors and consumer advocates suggest that you review your credit report periodically. Why?

• Because the information it contains affects whether you can get a loan — and how much you will have to pay to borrow money.
• To make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
• To help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Getting Your Credit Report

An amendment to the FCRA requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

For details, see Your Access to Free Credit Reports at ftc.gov/credit.

How to Order Your Free Report

The three nationwide consumer reporting companies have set up one website, toll-free telephone number, and mailing address through which you can order your free annual report. To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can use the form in this brochure, or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order from only one or two. The law allows you to order one free copy from each of the nationwide consumer reporting companies every 12 months.

You need to provide your name, address, Social Security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address. To maintain the security of your file, each nationwide consumer reporting company may ask you for some information that only you would know, like the amount of your monthly mortgage payment. Each company may ask you for different information because the information each has in your file may come from different sources.

Other situations where you might be eligible for a free report

Under federal law, you’re also entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, based on information in your report. You must ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company.

You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.

Otherwise, a consumer reporting company may charge you up to $10.50 for another copy of your report within a 12-month period. To buy a copy of your report, contact:

Experian-1-888-397-3742
www.experian.com

TransUnion-1-800-916-8800
www.transunion.com

Equifax-1-800-685-1111
www.equifax.com

Under state law, consumers in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont already have free access to their credit reports.

For details, see Your Access to Free Credit Reports at ftc.gov/credit.

Correcting Errors

Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

Step One

Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one below. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. This free report does not count as your annual free report. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you ask, the consumer reporting company must send notices of any corrections to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

Step Two

Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct — that is, if the information is found to be inaccurate — the information provider may not report it again.

Adding Accounts to Your File

Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to consumer reporting companies: some local retailers, credit unions, travel, entertainment, and gasoline card companies are among the creditors that don’t.

If you’ve been told that you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, ask the consumer reporting companies to add this information to future reports. Although they are not required to do so, many consumer reporting companies will add verifiable accounts for a fee. However, understand that if these creditors do not report to the consumer reporting company on a regular basis, the added items will not be updated in your file.

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

Sample Dispute Letter

Date
Your Name
Your Address, City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be removed (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing.)

Date Your Name Your Address, City, State, Zip Code Complaint Department Name of Company Address City, State, Zip Code Dear Sir or Madam: I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received. This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be removed (or request another specific change) to correct the information. Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing.)

As we do so much work with people from other counties we commonly get asked who can file for bankruptcy.  This question was settled in the 2005 changes.  Any individual residing domiciled, or having property or a place of business in the United States may file a chapter 7 bankruptcy.  To be eligible, the individual must, with certain rare exceptions, have received a credit counseling briefing from an approved agency within the 180 days before filing the bankruptcy petition.  The individual need not be insolvent and no other test is required to have been met.  A person, whether a citizen of the United States or not , may file a bankruptcy case even if the person does not reside in the United States, as long as the person has assets in the United States.

A common concern of people who file bankruptcy is what questions will the trustee ask me at the 341 meeting of creditors.  Below we have provided the guidelines put out by the U.S. Trustee’s Office.  While some of the questions are required the majority are dictated by your circumstances.  The best thing to do is to discuss this with your lawyer and come early for your meeting and sit in and listen to the questions the trustee ask the other debtors.

 

APPENDIX A SECTION 341(a) MEETING OF CREDITORS

(Effective July 1, 2002; Updated March 1, 2006)

 

REQUIRED STATEMENTS/QUESTIONS1

1.   

State your name and current address for the record.

 

2.   

Please provide your picture ID and Social Security number card for review.

 

 

a.    If the documents are in agreement with the § 341(a) meeting notice, a suggested statement for the record is: 

“I have viewed the original State of ________ drivers license (or other type of original photo ID) and original Social Security card (or other original document used for proof) and they match the name and Social Security number on the § 341(a) meeting notice.”

b.    If the documents are not in agreement with the § 341(a) meeting notice, a suggested statement for the record is:

“I have viewed the original Social Security card (or other original document used for proof) and the number does not match the number on the § 341(a) meeting notice.  I have instructed the debtor (or debtor’s counsel) to submit to the court an amended verified statement by [date], with notice of the correct number to all creditors, the United States Trustee, and the trustee; and to file with the court a redacted copy of the notice, showing only the last four digits of the Social Security number, and a certificate of service.”

c.   

When the documents do not match the petition, the trustee shall attempt to ascertain why and shall report the matter to the United States Trustee.

 

d.   

If the debtor did not bring proof of identity and Social Security number, the trustee shall determine why.

 

 

3.    Did you sign the petition, schedules, statements, and related documents and is the signature your own?  Did you read the petition, schedules, statements, and related documents before you signed them?

1 These statements/questions are required.  The trustee shall ensure the debtor answers the substance of each of the questions on the record. The trustee may exercise discretion and judgment in varying the wording of the statements/questions, if the substance of the questions is covered. 

4.   

Are you personally familiar with the information contained in the petition, schedules, statements and related documents?  To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?

 

5.   

Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?

 

6.   

Have you previously filed bankruptcy?  (If so, the trustee must obtain the case number and the discharge information to determine the debtor(s) discharge eligibility.)

 

7.   

What is the address of your current employer?

 

8.   

Is the copy of the tax return you provided a true copy of the most recent tax return you filed?

 

9.   

Do you have a domestic support obligation?  To whom?  Please provide to me the claimant’s address and telephone number, but do not state it on the record.

 

10.  

Have you read the Bankruptcy Information Sheet provided by the United States Trustee?

 

 

 

SAMPLE GENERAL QUESTIONS

(To be asked when deemed appropriate.)

1.   

Do you own or have any interest whatsoever in any real estate?

 

If owned: When did you purchase the property?  How much did the property cost?  What are the mortgages encumbering it?  What do you estimate the present value of the property to be? Is that the whole value or your share? How did you arrive at that value? If renting: Have you ever owned the property in which you live and/or is its owner in any way related to you?

 

2.   

Have you made any transfers of any property or given any property away within the last one year period (or such longer period as applicable under state law)? If yes: What did you transfer?  To whom was it transferred?  What did you receive in exchange?  What did you do with the funds?

 

3.   

Does anyone hold property belonging to you? If yes: Who holds the property and what is it?  What is its value?

 

4.   

Do you have a claim against anyone or any business? If there are large medical debts, are the medical bills from injury? Are you the plaintiff in any lawsuit? What is the status of each case and who is representing you?

 

5.   

Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death? If yes: Please explain the details.

 

If you become a beneficiary of anyone’s estate within six months of the date your bankruptcy petition was filed, the trustee must be advised within ten days through your counsel of the nature and extent of the property you will receive. FRBP 1007(h)

 

6.   

Does anyone owe you money? If yes: Is the money collectible?  Why haven’t you collected it? Who owes the money and where are they?

 

7.   

Have you made any large payments, over $600, to anyone in the past year?

 

8.   

Were federal income tax returns filed on a timely basis?  When was the last return filed? Do you have copies of the federal income tax returns?  At the time of the filing of your petition, were you entitled to a tax refund from the federal or state government ? If yes: Inquire as to amounts.

 

9.   

Do you have a bank account, either checking or savings? If yes: In what banks and what were the balances as of the date you filed your petition?

 

10.  

When you filed your petition, did you have:

 

a.   

any cash on hand?

 

b.   

any U.S. Savings Bonds?

 

c.   

any other stocks or bonds?

 

d.   

any Certificates of Deposit?

 

e.   

a safe deposit box in your name or in anyone else’s name?

 

 

 

11.  

Do you own an automobile? If yes: What is the year, make, and value?  Do you owe any money on it? Is it insured?

 

12.  

Are you the owner of any cash value life insurance policies? If yes: State the name of the company, face amount of the policy, cash surrender value, if any, and the beneficiaries.

 

13.  

Do you have any winning lottery tickets?

 

14.  

Do you anticipate that you might realize any property, cash or otherwise, as a result of a divorce or separation proceeding?

 

15.  

Regarding any consumer debts secured by your property, have you filed the required Statement of Intention with respect to the exemption, retention, or surrender of that secured property?  Please provide a copy of the statement to the trustee.  Have you performed that intention?

 

16.  

Have you been engaged in any business during the last six years? If yes: Where and when?  What happened to the assets of the business?

 

 

In cases where debtors are engaged in business, the following questions should be considered:

1.   

Who was responsible for maintaining financial records?

 

2.   

Which of the following records were maintained?

 

a.   

Cash receipts journal

 

b.   

Cash disbursements journal

 

c.   

General journal

 

d.   

Accounts receivable ledger

 

e.   

Accounts payable ledger

 

f.   

Payroll ledger

 

g.   

Fixed asset ledger

 

h.   

Inventory ledger

 

i.   

General ledger

 

j.   

Balance sheet, income statement, and cash flow statements

 

 

 

3.   

Where are each of the foregoing records now located?

 

4.   

Who was responsible for preparing financial statements?

 

5.   

How often were financial statements prepared?

 

6.   

For what periods are financial statements available?

 

7.   

Where are such financial statements now located?

 

8.   

Was the business on a calendar year or a fiscal year?

 

9.   

Were federal income tax returns filed on a timely basis?  When was the last return filed?

 

10.  

Do you have copies of the federal income tax returns?  Who does have the copies?

 

11.  

What outside accountants were employed within the last three years?

 

12.  

Do you have copies of the reports of such accountants?  Who does have copies?

 

13.  

What bank accounts were maintained within the last three years?

 

14.  

Where are the bank statements and canceled checks now located?

 

15.  

What insurance policies were in effect within the last year?  What kind, and why?

 

16.  

From whom can copies of such insurance policies be obtained?

 

17.  

If the business is incorporated, where are the corporate minutes?

 

18.  

Is the debtor owed any outstanding accounts receivable?  From whom? Are they collectible?

 

19.  

Is there any inventory, property, or equipment remaining?