It has been almost 4 years now since Hank Paulson came on TV and told America that we needed to prop up the banks, to avert a financial disaster. That headline changed just about every average American's lifestyle instantaneously. After that happened, real estate prices dropped drastically causing a record number of Americans filing bankruptcy and facing foreclosure. When real estate goes in the tank, it drags every industry down with it. First, the construction industry goes south and after that all of the consumer goods follow closely behind. When consumers stop spending, businesses that are overextended have no other choice but to file for bankruptcy. Some of the lucky ones are able to restructure filing Chapter 11, but many of them have been forced to close filing Chapter 7 bankruptcy.
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With a large number of American businesses filing for bankruptcy, the consumer will be close behind. When businesses close, unemployment rises and the cycle continues over and over. In the past, the mainstream media has continued to try and prop up the economy by reporting only part of the news. In reality, unemployment is probably much higher than the 8.3% that was just reported.
In the past, many people had a perception of individuals filing bankruptcy, as debtors that didn't want to pay their debts. The truth is, most people are forced into bankruptcy by a disaster that comes into their lives. The most common reasons are unemployment, a serious illness or medical condition and/or a family breakup that led to divorce. Bankruptcy filing is not something that most honest Americans aspire to do. There are some people that take advantage of the system and abuse bankruptcy. This is what led the credit industry to lobby Congress to make drastic changes to the bankruptcy code back in 2005. After what happened in 2008 and is continuing on, many people are arguing the facts of how these changes should not have been made.
With changes to the bankruptcy code, it has made it harder for people to file Chapter 7 bankruptcy. Now, a person filing Chapter 7 bankruptcy needs to qualify by taking a means test. If they make more than the median income of their state, they will be required to file Chapter 13 instead. For some situations this can be devastating and set the individual up for failure. It is also made it harder for an individual to file pro se. Although, it is not necessary, it's advisable to hire a bankruptcy attorney to navigate the complexity of the new bankruptcy code.
As the economy of the United States continues to slide down the slippery slope, only time will tell if this bankruptcy filing boom will materialize. Conservative analysts believe the flat bankruptcy filing rate of the last couple years will soon start to ramp up and increase. Only time will tell. Americans need to look back to the advice of their grandparents and find a way to learn to live debt-free.
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