National Personal Bankruptcy Chapter 7 and 13 for May

Personal bankruptcy filings for the month of May have increased compared with a year ago, but dropped slightly compared with a month earlier, the American Bankruptcy Institute reported last week.

Here’s a breakdown of the data.

Total filings: In May 2010, 136,142 personal bankruptcy cases were filed, a nine percent increase from May 2009, when 124,838 cases were filed.
Month-to-month change: May’s total marked a six percent drop from April of this year, when 144,490 cases were filed.
Distribution: Of the cases filed, 26 percent were under Chapter 13 of the U.S. Bankruptcy Code, and most of the remaining 74 percent were under Chapter 7.
Projected total: Based on figures collected so far this year, most sources estimate that personal bankruptcy filings this year will total about 1.6 million, a 10 percent increase over the 1.44 million filed in 2009.
So what can these numbers tell us about the economic situation in the U.S.? Let’s take a look.

The Effect of Unemployment
While the decrease in filings from last month can be seen as good news, the increase from this time last year could be read in just the opposite way, meaning that these bankruptcy figures provide no clearer picture of the economic situation than any other economic indicator.

Long-term unemployment: The year-to-year increase we see in bankruptcy filings could be one of the effects that the nearly consistent unemployment rate has had—people who have been out of work for several months may have depleted their cash reserves and be turning to bankruptcy for financial relief.
Chapter 7 vs. Chapter 13: Another indicator that unemployment is hurting the country is that Chapter 7 cases outnumber Chapter 13 cases nearly two to one, indicating that most people in financial distress cannot afford repayment plans to resolve their outstanding debts and have relatively little income.
The role of mortgages: In addition to the problem of unemployment, mortgage costs may be pushing more filers toward Chapter 7. Despite the Obama Administration’s Home Affordable Modification Program (HAMP), millions of Americans with unaffordable mortgage loans have not been able to have their loans modified, meaning that they’re stuck with expensive (and, in many cases, too expensive) mortgage payments.

If you’re struggling with unwieldy debt, an unmanageable mortgage or other financial burdens, you may want to consider calling or e-mailing the Maryland Bankruptcy Center to see whether personal bankruptcy protection is right for you.