Personal Bankruptcy Filings Up Nearly 9%; Chapter 13 Filings Common

The American Bankruptcy Institute, relying on data from the National Bankruptcy Research Center, reports that more than 135,000 consumers filed for bankruptcy in October 2009. The industry group estimates that this represents a nearly 9% increase in filings from the previous month. ABI Executive Director Samuel J. Gerdano commented that the increase in consumer bankruptcy filings in October, together with a reported 7 percent increase in business cases, “demonstrates the sustained stress on the U.S. Economy."

The American Bankruptcy Institute further predicts that by year's end, total bankruptcy filings will be up 30% over 2008. In fact, as of October, bankruptcy filings were up 22% over the same period in the previous year, with roughly 950,000 filings, as compared to roughly 700,000 in the same period in 2008.

Of October's filings, the American Bankruptcy Institute estimates that roughly one-third of consumer bankruptcy filings were Chapter 13 filings. As discussed before on our blog, a Chapter 13 bankruptcy filing, also known as a “wage earner's plan,” provides a flexible means for individuals to work out a payment plan with creditors, in particular when those individuals do not have incomes low enough to qualify for a Chapter 7 liquidation bankruptcy filing, or where the individuals wish to retain particular property after filing for bankruptcy.

A Chapter 13 filing allows an individual with a regular income to create a plan with the bankruptcy court's approval to pay on outstanding debts. After the payment period established under the plan, the remaining balance of the debts is often discharged. The duration of the repayment plan varies. For wage earners with monthly incomes below a particular median income (determined on a state-by-state basis), the standard period for a repayment plan under Chapter 13 is three years. For those with incomes above the applicable median income, the standard period for a repayment plan under Chapter 13 is five years. Depending on your locale, however, the time you spend in your bankruptcy plan can be less than 3 years. Talk to an experienced bankruptcy attorney about this issue.

Please note that as of May 2009, the amount of debt that may be discharged under a Chapter 13 bankruptcy filing is limited to $336,900 or less of unsecured debt and $1,010,650 of secured debt. These amounts are recalculated periodically to account for changes in the consumer price index.

If you are considering filing for bankruptcy, the evidence is abundantly clear that you are not alone. Many American consumers are concluding that filing for bankruptcy is an effective way to resolve outstanding debt issues and move on with their lives.