Washington: Bankruptcy filings by US consumers jumped 47.7% in April from one year ago as families cope with fallout from the subprime mortgage crisis, the American Bankruptcy Institute said on Friday.
The 92,291 bankruptcy filings in April also marked an increase of 7% from March, the non-partisan institute said.
“The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes,” said Samuel Gerdano, executive director of the institute. “We expect consumer bankruptcies to top 1 million new cases this year”.
For all of 2007, there were 850,912 U.S. bankruptcy filings, up 38% from 2006.
The all-time high of more than 2 million consumer bankruptcy filings occurred in 2005, just before the federal bankruptcy law was reformed to make it more difficult for consumers to discharge their debt under Chapter 7 of the law. The reforms also increased debt payments required under Chapter 13 filings and eliminated some protections such as delaying housing evictions or delaying child support proceedings.
Some Democrats in Congress this year unsuccessfully sought another change in the federal bankruptcy law to let bankruptcy judges reduce mortgage amounts to reflect the current fair value of a home. That move was opposed by Republicans and the banking industry.
Under current Chapter 13 bankruptcy law, a judge may restructure most of a consumer’s loans ranging from credit cards to car payments, but may not modify a secured debt such as a home mortgage.
Bankruptcy filings made under Chapter 7 allow a consumer or business to liquidate assets to pay off creditors. Chapter 11 filings are made by companies seeking to reorganize and pay debts while staying in business.