Filing For Personal Bankruptcy: Schedules Plans Payments From HIGH RATE CREDIT CARD AND HOME MORTGAGE LENDING

Filing for personal bankruptcy: the fact that more bankruptcies are being filed is not evidence, in itself, that debtors are abusing the system. The reality is that more cases are filed, because more American families are faced with crushing debt. There is much more consumer credit outstanding than ever before. With the additional extension of credit, comes additional risk.

Example two for filing for personal bankruptcy: The increase in bankruptcy filings is an unfortunate consequence of several significant structural changes in the American economy. These changes have combined to create a rise not only in bankruptcy, but also in foreclosures,(2) repossessions, utility disconnections, credit card defaults(3) and visits to consumer credit counseling agencies.(4) Nevertheless banks continue to be very profitable, reaching record profits of 62 billion in 1998.(5)

These are the factors which have contributed to the increase in filings:

Downsizing, economic dislocation, income disruptions, and underemployment. Families are increasingly impacted by instability in employment income, particularly at the lower end of the wage spectrum.(6) Although unemployment remains low, many workers file bankruptcy after being forced to shift to lower paying jobs. A surprising statistic, based on data compiled by Visa and MasterCard, is that no more than 29% of bankruptcies are caused by overspending. The balance of filings are caused by other life events over which consumers have little or no control.(7)

Rising debt to income ratios. More families have more debt. Part of the reason for this is that the lending community has aggressively marketed credit card debt,(8) because it profits from the very high interest rates. Another factor is the unprecedented increase in the cost of education and the corresponding increase in student loan debt.(9) One family in six below $25,000 in annual income, spends more than 40% of its income on debt service.(10)

Reliance on two wage earners to make ends meet. This change in a fundamental condition of the economy means that every family has double the risk. With two wage earners vulnerable to income instability, any change for either one creates enormous pressure on the family budget. Child-bearing and time off to raise children mean that a family which was getting by on two incomes is forced to rely on only one.

Rising divorce rates. A corollary of the latter factor is that when a family splits up, the pressure of running a household with less total income is impossible. Bankruptcy debtors are disproportionately single parents.(11)

Uninsured medical debt. At a time when a two day stay in the hospital to deliver a baby can cost as much as $20,000, the uninsured have virtually no options to manage medical debts.(12) Bankruptcy has played an increasing role as the only way out.(13)

Aggressive Creditor Collection Action. Wage garnishments, debt collection by aggressive telephone calling, and pursuit of legal remedies push many families into bankruptcy.(14) Few debtors can afford to pay an attorney to defend against a debt collection or wage garnishment action even when they have valid legal defenses.(15) Many bankruptcy filers report that their attempts at non-bankruptcy payment arrangements were rebuffed.

Deregulation. As rates and terms of credit have been deregulated, an increasing number of American families have gotten credit on bad terms.(16) High rate home equity loans, credit card interest rates exceeding 18%, and consumer fraud tied to credit are frequent contributing causes of bankruptcy.(17) As some borrowers are increasingly pushed into "sub-prime" loans at high rates, the bankruptcy system is at the fulcrum of a "chicken and egg" problem. Are high risks justifying high rates, or are the high rates causing defaults which generate risk?(18)

More Credit Means More Bankruptcy. The clearest correlation of bankruptcy cause and effect is between the increase in the amount of credit outstanding and the number of filings. The number of bankruptcies and the total amount of consumer debt in our society have moved upward together in lockstep.(19) It is not surprising that as more Americans borrow more money, more families have financial troubles.

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