2 Min Read
NEW YORK (Reuters) - Personal bankruptcy filings soared 40 percent in October and are expected to keep climbing as home values sink and individual debts balloon, the American Bankruptcy Institute (ABI) said on Tuesday.
U.S. consumers filed some 106,266 bankruptcies in October, up 40 percent from a year ago and up 20 percent from September.
"We expect the numbers will continue to go up," said ABI Executive Director Samuel Gerdano. "It's the aftermath of the debt overhang that many households are facing, plus an inability to tap into home equity, which traditionally helped buttress home finances."
As consumers continue to struggle to pay their mortgages, car and credit card bills, the ABI predicted that filings this year are expected to rise to 1.1 million, a record since a stricter bankruptcy law took effect in late 2005.
So far this year, consumers have filed more than 880,000 bankruptcy petitions, eclipsing 822,000, the total for all of last year, the nonprofit education and research group said. ABI used data from the National Bankruptcy Research Center in its report.
This is the first time that personal filings have topped 100,000 in a month since the U.S. Bankruptcy Abuse Prevention and Consumer Protection Act took effect.
The law made it more difficult for an individual to file for Chapter 7 bankruptcy protection, a filing that allows most debts to be forgiven. Under the law, individuals must undergo a review to determine whether they have enough income to pay some portion of their debts.
Immediately after the act was passed, personal bankruptcy petitions dropped from about 2 million in 2005 to just 600,000 in 2006. The numbers include both Chapter 7 and Chapter 13 filings. Chapter 13 forces consumers to put some portion of their income toward debts.
Personal bankruptcies have been creeping higher since then, as consumers find themselves deeper in debt.
"Things will only get worse," said Jack Williams, an ABI resident scholar.
Reporting by Chelsea Emery; editing by Jeffrey Benkoe