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Consumer Bankruptcies Signal Need for Vigilance

  • Written by Syndicated Publisher 37 Comments37 Comments Comments
    January 6, 2011

    As shown in the chart below, consumer (non-business) bankruptcy filings dropped sharply in 2006 in response to a new federal law that made it more difficult for filers to have their debts forgiven.

    The Bankruptcy Abuse Prevention and Consumer Protection Act, signed into law by President George W. Bush in 2005, took effect in October 2006. The new law made it much more difficult for consumers to file Chapter 7 bankruptcies, under which most debts are forgiven, but instead forced they to file under Chapter 13, which requires repayment of a portion of debt before the remaining debt can be discharged. The result, as shown in the chart below, was a sharp spike in bankruptcy filings, to more than 2 million filings in 2005, followed by a drop to about half a million in 2006, when the new rules took effect. The new law marked the end of the so-called “free money” bankruptcy policy. Under the new law, bankrupt consumers are forced to restructure their debts and continue paying.

    But since that time, as the chart shows, the number of non-consumer bankruptcies has risen steadily every year—impacted no doubt by the real estate crash, 2008 financial crisis and continued high unemployment and job losses. Consumer bankruptcies rose approximately 8.8% between 2009 and 2010 alone.

    This steady increase in personal bankruptcies is an indication of the perils of the new economy. In the current economic environment it is more important than ever before for people to consider their futures and act to protect their wealth before acting to increase their wealth. Although it is impossible to predict future events, one can still prepare for them.

    Today it’s more important than ever to measure and analyze the risk in each investment you are about to make and think about the worst-case scenario. Even after you have made your investment, it’s important to remain aware of exactly what is happening in the economy. There will be changes in economic policies that will affect you in one way or another depending on your investment. It is imperative that you stay on top of your investments in order to grow your wealth and protect that which you already have.

    via Consumer Bankruptcies Signal Need for Vigilance – Wealth Cycles Blog.
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