In another sign that the average American is becoming largely desperate as the current recession continues, bankruptcy filings are up 100% since the year 2007, according to data recorded by the US Courts. With more economic hardship and fewer jobs to go around, people just have less (or no) income to pay their debts, whether they are credit cards or home loans.
The increase in bankruptcy filings is also happening despite the banks' and lawmakers' attempts to create a modern version of the debtor's prison. The 2005 bankruptcy reform legislation was created to cut down on the number of people filing for debt relief by making it more difficult to dismiss debts. If owners did not meet the new requirements, they would be required to pay back a portion of the accounts to their creditors.
Before the 2005 act went into practice in 2006, record numbers of debtors filed bankruptcy under the old laws. Once the new law went into effect, filings dropped sharply for a time, but have begun a steady climb from 2006 until the present. And with tens of millions of Americans now out of work and facing huge amounts of debt, bankruptcy filings are essentially back to where they were before the reform was initiated.
With the new bankruptcy laws in effect, simple dismissals of debt under Chapter 7 filings were supposed to be reduced. A means test was administered to the requirements to file, and if the debtor did not pass the test, they would be forced into a Chapter 13 bankruptcy if they still needed relief through the court system.
Although the means test may have kept some borrowers from filing Chapter 7, the high unemployment rate has guaranteed that many people simply do not have any means to pay their bills. For them, discharging their debt may be the only solution to avoid collection actions by banks or collection agencies. And with no means to pay their bills at all, they are able to surpass the court's test and file a Chapter 7.
Thus, banks have always wanted to avoid the possibility of borrowers filing for Chapter 7 bankruptcy and being able to remove all of their debts. Even if the debtors do not have any assets or income, the lending institutions would rather be able to sell the debts or sue the owners and obtain judgments and garnishments against them. If bankruptcy is an choice at all, banks would rather that it be a Chapter 13 repayment plan, as opposed to than a discharge.
Without an end in sight for the recession, and with the government rewarding banks for making bad loans to consumers, bankruptcy filings can be expected to keep rising. Americans do not have jobs or assets, because they are being forced to subsidize banks which keep making poor lending decisions and then claiming the nation's finances and assets for themselves as ordinary people can not keep up.
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