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More Chapter 7 Cases Being Filed Nationally — New Trend

chapter-13-filings-as-percentage-thru-q42009 [1] 
Written by Craig D. Robins, Esq.
 
Bankruptcy statistics show that a larger percentage of consumers are filing for Chapter 7 Relief, rather than Chapter 13 — and Creditors are not happy
 
Recent figures reveal that more and more consumers are electing to file Chapter 7 bankruptcy petitions as opposed to Chapter 13.  This is contrary to what creditors expected when they lobbied Congress to toughen the bankruptcy laws.
 
When the new laws went into effect in 2005, creditors anticipated that many consumers would fail the means test and be forced to file a payment plan bankruptcy under Chapter 13, whereas before the new laws, consumers could have easily filed for Chapter 7 relief and simply discharged most debts without having to make any payments at all.
 
In April 2010, only 25% of all bankruptcy filings across the country were Chapter 13 cases.  This is down from February 2010, when 29% of all cases were Chapter 13, and February 2009, when the it was 31%, and January 2009 when it was 33%.  For most of 2006 and 2007, Chapter 13s averaged about 38% of all bankruptcy filings.
 
These figures contrast sharply from those when the new laws went into effect in 2005.  Initially, only one in three filed for Chapter 7; now three out of four prefer Chapter 7.
 
Consumers Now Prefer to File Chapter 7 in Three Out of Four Cases
 
Apparently, far fewer homeowners are seeking to save their homes.  I previously wrote about the concept of “strategic default” [2] — which has to do with walking away from your home, after trying to stay in it as long as possible without making any payments.  See:  Strategic Mortgage Defaults Increasing [2]
 
As Professor Katie Porter recently suggested in her blog article on Credit Slips [3]about this trend:
  
Homeowners in 2008 and 2009 seem to have realized three things: 
 
1) home prices are not going up anytime soon; the “crisis” is  a long-term change in the housing and mortgage markets; 
 
2) they are not going to get a loan modification; the Administration’s projected numbers of those who would be helped by HAMP and HARP were fanciful (dare I say “misleading”?); and
 
3) they simply cannot make their mortgage payments in a world where overtime is being eliminated, unemployment is a fear or reality, increased tax burdens loom as states and localities can’t make ends meet, and many other costs remain high (gas, health care, etc.).
 
Many people had these realizations in 2008, and many more had them in 2009. Each year, the share of chapter 13 filings plummeted. And all this, despite BAPCPA’s purported intent of driving up chapter 13 filings and making people pay more of their debts.
 
  
Most Chapter 13 Cases Are in the South
 
Incidentally, those states with the highest concentration of Chapter 13 filings are in the South.  Louisiana had the highest concentration — 56% of cases were Chapter 13 — and South Dakota, Iowa and New Mexico had the lowest percentage of Chapter 13 cases — all under 10%.
 
The number of cases filed nationwide in April was 145,000, which was about the same number as last year.
 
Nationwide, filings to date this year reveal that 1 out of every 225 households has sought bankruptcy relief have sought bankruptcy during the first four months of 2010.
 
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