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Visualizing America's Surging Personal Bankruptcy Filings
As we pointed out on Wednesday, personal bankruptcies recently jumped to a five year high (a 20% increase over the prior year). While the recent increase in filings has been alarming, the truth is that it could merely be a mean reversion, which as the chart below shows, is precisely where filings used to be prior to the 2005 bankruptcy reform passed. As The Economist, which created this chart points out, " The data suggest that an older trend is reasserting itself. This is
could be more bad news for America—or it could just mean that creative
destruction is alive and well." Either way, the chart is sure to see quite a bit of airplay this election season, as the populist rhetoric heats up. Don't be surprised however if the section before 2005 is cut off.
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New law comes into effect, people think it's harder to file. So fewer people do. Then the lawyers figure out all of the new regulations and bankruptcies increase. Lather, rinse, repeat, and see you in 2015 for the next big change in the law. (if not sooner...)
Yep. It's not really harder to declare bankruptcy, there are just more third rails you have to avoid.
Unsecured debt is laughably easy to default on, anyway. Why declare bankruptcy when you can attain the same result by just defaulting on all your loans? That's what's been reflected in the numbers, too.
Ironically, this has probably hurt creditors more than maintaining the old bankruptcy laws. At least during an orderly bankruptcy, the creditors receive some compensation.
I defaulted on all my debt, changed my # and moved. Anytime they track me down, I use the my rights and declare all debt be provided to my directly and write to them requesting they no longer call me. Once they fuck up these two things I simply point out the fuck up, log it in my journal, make them aware of the fine they'll pay, ask to talk to a manager, tell the manager exactly what I just stated and just like that my debt is forgiven. I of course ask for written confirmation that it is forgiven and reported to the credit agencies. Somehow they never fuck this up. I like to think of this as proprietary debt defaulting.
lol your handle and avatar suit you well. of course your neighbour ends up picking up the tab but bravo for gaming the system. at some point when theres a critical mass gaming the system the reset will be that much sooner (already seeing this in folk not being evicted for not paying mortgage as banks dont want any more inventory rotting away)
i just hope we all learn the lesson once the deep clean comes : entitlement is BS.
move along , nothing to see here.
momo
Well, we didn't learn from the Romans, and the list goes on.
As long as there are Bawney Fwank types in the world (sound of retching here), we will never learn.
- Ned
My question is, when will the states figure out how to declare bankruptcy?
Point taken. I had a moment of utopian naivety. Which is the domain of socialist psychopaths.
Eric, a bit curious. How did you keep them from suing you and garnishing your wages and property? I have no love for Credit Card companies, they are all thieves and scoundrels, but they do have the power of the system behind them.
It's unsecured debt.
My punishment is a slap on the wrist in the form of a lower credit score. Since I don't plan to play with credit again, I really don't care about my score.
The trick is to wait a year, then when that debt collector who just bought your debt from another debt collector for less than 5 cents on the dollar gives you a call, offer to pay 10% of your total debt and BELIEVE me, all is forgiven. Sick I know but that's the b.s system we operate in today.
A year and a half ago I was driving the 99 near Fresno thinking of Steinbeck and the Grapes of Wrath, when I spied a billboard that read Bankrupty (top)....still a possibility (bottom). There was a man holding some paper (bills?) and looking concerned. I wonder what Tom Joad would think? Probably something like this: Dustbowl, Bitches!
Chart Correction
Item: Dotted Red Line
Should be labeled: NEW LAW HAS NO EFFECT
No; Should be labeled: Learning curve for the lawyers
Were the chart representing a security, it would be a screaming buy. We are so screwed.
In hindsight, that '05 BK revision is telling. The boyz knew the credit bubble was in blowout mode. Maximum effort was expended to handcuff the overleveraged sheeple to their debts.
Like so many other gubermint schemes, this one didn't work either.
Actually, to see exactly how screwed and actually see a pattern/picture too, please see:
http://tinyurl.com/yjvndyk
Eye-popping!
ORI
http://aadivaahan.wordpress.com
Why would anyone bother to file for bankruptcy? The entire United States has been bankrupt since 1933. You need only discharge your debt as specified under the Uniform Commercial Code by submitting three pieces of paper: the presentment, the transfer instrument, and the surety agreement. There all done!
Kayl,
Is that really possible though? And who sees or has "presentments" and surety agreements?
I've tried to study the UCC thing, get free of the matrix etc... have you done it?
As for this graph.....hmmmmm.... I see inconvenient, incontinence causing truths on so many graphs lately and the last 5 percent of the line is always going vertically up!
That is usually the sign of a runaway system.
A sign to run away from the system perhaps.
ORI
http://aadivaahan.wordpress.com
There's our "V" shaped recovery!!! No, wait.....
I thought that the argument for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, was that bankruptcies were supposed to decline and be more difficult. It seems that a new Abuse and Protection Act is in order, right after another Stimulus Package.
MI-Man:
Then you got TF'd: first, you get Tricked, then you get...
;-) but I'd bet you are being coy.
- Ned
Thanks for the support!!!! I should have ended with "sarcasm off"
yep a friend of mine ran up his credit cards with cash advances $125,000, stopped paying on his home for over a year and recently declared Chap 7. The Chap 7 filing was accepted and discharged now he is waiting out the next 3 years to purchase a home and start over again.
Canadian data isn't anywhere near as bad. Read the report Insolvency Statistics in Canada — May 2010.
That's because the Canadian RE bubble hasn't burst yet, Leo (showing signs that it's starting to though).
Canadian private debt, on a per capita basis, is the highest in the G20.
Hear that ticking sound, Leo? It's the sound of inevitability.
canada dealt with the gfc with nothing variable rates, 5% down with a 5% cashback. its starting to collapse now. sales are dropping like a stone and i've been told that 30% of units in vancouver are speculative. a lot of people going to get trampled in the doorway. btw goldman saks runs our central bank,(mark carney). that should tell you how screwed we are.
This is the crash that everyone is expecting, so it will probably turn out differently in some respect and surprise us all. What is different in the Canadian context is that money is flowing into the country in great quantities from all over the world. One of the main areas it is flowing is into commercial and residential real-estate. Anecdotally, I often hear stories still about how people are moving to a new city and trying to buy a house. They find themselves competing with foreign bidders who attempt to buy anything available.
I suspect that when the next big financial/credit explosion happens, we may see a torrent coming into countries like Canada and Australia, driving them to a delayed and even more spectacular peak and flame-out.
That's because Canada is filled with middle class white people, just like the U.S. used to be. You don't seem to understand what's happened to the U.S., do you Kolivakis.
That's because America Jr. still has their native populations of feral unicorn. And rainbows.
Populace default bailout is tit for tat to the banks bailout.
What goes around comes around.
Amen
Big plus on that..."It's no measure of health to be well adjusted to a profoundly sick society." As more and more people are pressed and distressed, it would appear that there's a greater willingness to recognize just how abusive and predatory the entire current financial and economic systems have become. Given that the markets are now nothing more than clusters of Apple IIe's playing pick-up-sticks with one another, I feel that it would be excellent if, in response to banks sitting on enormous reserves and yet not being willing to lend, we all just refused to use any credit at all anymore. After all, when you have a corrupt government in bed with the bloated Wall Street firms, and the Fed basically maneuvering in completely nonsensical and inscrutable ways, it seems fairly certain that the only retribution that can be visited upon these idiots is the lack of participation in such a fraudulent system by the public at large. If the free markets aren't truly free anymore, why bother getting involved at all?
A short poem by Mark Beck;
"DEBT_END"
With the end of extend,
you cannot defend pretend,
and thus debt, which will not be bought,
is left to default.
Mark Beck
DEAD END
Gather round boomers and Xers and friends
And admit that the Chosen One won't make amends
For leading us down pathways we now can't pretend
Are wholesome and right and meant to extend
The life of our beautiful nation
I'm not familiar with the U.S. bankruptcy law changes. However, the chart makes it look like filings were really ramping up from 2004 to 2005. What's the likelihood that the changes to the law actually were effective, at least in terms of preventing people from filing when they really should have? If so, that would indicate that there may be far more people who are actually insolvent by normal measures than the bankruptcy rate leads you to believe.
The reason why the chart ramped up is because everyone knew that the easy days for declaring Bankruptcy were over. The Bankers had been trying for 10+ years to make it harder to declare Bankruptcy, but the Democrats in the Senate managed to hold out. Finally, they got bought off (lead by Ted Kennedy) and sold out.
Perfect timing too; right before the housing bubble burst.
So that's why people rushed to file bankruptcy; before it became harder and more expensive. It basically forces the majority of people to pay off more of the debt under Court supervision. The Bankers love it.
Note though, that IMO this is about to change. Part of the reason will be that the Courts are swamped again. But a bigger part will be the MERS fiasco. The Banks are really, truly screwed here. Basically, Courts are giving foreclosed homes back to the owners, free and clear, because the Banks set up MERS so that they could easily create MBS's (that's a short descriiption). The problem is that MERS ended up putting their name on the Deed.
The law is very clear. Unless there's a mortgage holder who shows up in Court, the Home (basically) goes back to the home owner. And MERS doesn't hold the Note. I.e. they have no standing in front of the Court. This was recently done in California, which is one of the biggest foreclosure disasters in the Country.
In short, tens of millions of homes may now be claimed by the homeowners, free of the Banks. I'm not kidding. These is fast becoming the standard throughout the Nation.
This will Bankrupt the Banks. The only practical way out is to change the Bankruptcy and Foreclosure laws at the Federal level. Watch for this to happen after the mid-term elections. And watch for the Bankruptcy laws to get even more restrictive.
+1 A tranche
This reasoning provides the key "until" point in the extend-and-pretend foreclosure game. It bears repeating: The banks / MERS won't move on the bulk of the "housing margin calls" aka foreclosures *until* they get a well-greased and de-risked lawful RTS (right-to-screw) from the govsters.
Thanks for the info. This explains some of the bizarre behavior by the local banks. Much of the rest is simply desparation, and lack of alternatives. Once they begin to recognize big chunks of their losses on real estate, almost all of them are broke. It's not so much extend and pretend as "extend and pray for a miracle."
what would be the consequences for freddie and fannie?
F&F are going down, it's only a question of "when". And that ought to happen after a dislocation in the Bond markets. I.e. when the U.S. has problems refinancing its debt. A MERS judgement for homeowners would make that happen much sooner than later.
Thanks Eternal Student. That's a great summary. I had heard of individual cases where courts awarded title back to the owners in places like Boston, but hadn't heard that it was becoming the norm. I have some family members underwater and at risk in the U.S. so I will pass this on to them to check out.
Here's a must read article for them then:
http://www.webofdebt.com/articles/homeowners.php
Entitled "HOMEOWNERS' REBELLION: COULD 62 MILLION HOMES BE FORECLOSURE-PROOF?"
I wish them the best of luck.
Nice write-up on the MERS fiasco here:
http://www.rense.com/general91/could.htm
Go bankrupt, go to Mexico and then come back as an illegal. Feed off the system, repeat, rinse....
No paga, no paga, yeah, no paga..
yeah, you bottom feeders! I did get a chuckle out of this.
checking login
over and out
Malla-welcome.
always loved "over and out." That says, "back to you big-fella, only I'm not listening." ;-)
- Ned
anyone arguing for a reversion to mean is a fucktard.
That's right...because it's going to pass mean and go straight to nasty.
The mean and nasty will be statistically arbitraged down to slightly miffed and unheigenic.
Would you like a super-sized bowl of dust with that order, sir?
Somehow methinks the folks in TexArkana won't be moving to California this time? Maybe it will be a reverse migration this time!
California is so screwed.
Please add /sarcasm if intended; otherwise I think Hephasteus is reverting to the wrong mean.
Wife and I had a converstation about bankrupcy in our dark days recently while struggling to pay off a large bill.
We decided that it will be a form of moral theft and taking advantage of the system and will answer for it. So we stayed with it. We chose not to claim bankruptcy.
Eventually the bill was resolved and now we are on the other side with liquid cash and a little debt that will eventually too be made to go bye bye.
Fortunately most of the money we have spent this year has stayed right here in the Good old USA.
We dont believe in Bankrupcy. I feel that the people who probably taken advantage of the system will find that they brought it upon themselves.
Now, with that said, I am very concerned about the unemployment checks running out on millions of people. There will be zero income zero bills paid, zero for the banks, zero for everything else and essentially despite my feelings, were bankrupt.
But in the meantime, we are going to hang tough and claw our way to freedom to a point where no one but the tax man can tell us what we owe each year.
some tough stories around...
http://www.unemployed-friends.com/
moral theft? That's a peasant mentality.
You have no moral obligation to repay debt. It is a contract matter, purely business. The bank never actually had the money that it lent to you anyhow.
Then that green dollar bill you rely on to gas your car to get to work is not worth anything at any value anyway.
The Lord commands one not to be in debt or to be a lender. Should one lend or borrow, then repay quickly or collect quickly. Don't oppress the servant who depends on his day's pay to eat.
Peasant Mentality does not fly with me because there is a difference between right and wrong. Sure we can work the system and be a burden onto the rest of the USA, but we choose not to be. Eventually we will not need the bank.
In fact the only way we use a bank these days is to clear direct deposit checks. That's it. Nothing else. And the normal billing of gas, water etc each month? All paid automatically on time.
Perhaps when a Nation lacks a Moral Strength and fails to stay the course, then the entire Nation should suffer.
I think what he's saying is, contracts are not a moral issue, especially when you're talking about fractional reserve lending (which is a legally-sanctioned form of fraud to begin with). A contract is not a blood oath; it is a business transaction that can be changed, dropped, breached, whatever, because everyone has those contingencies in mind from the outset.
The Federal Reserve and the government are sucking the nation dry via the dilution of the purchasing power of the dollar. This is what is causing the depression we're in, the unending unemployment, and the surge in bankruptcies - not some vague 'moral weakness' pervasive in the country. Our weakness is less about morals and more about awareness of how and why the government is screwing us instead of working for us.
So yes, there is a difference between right and wrong, but bankruptcy is not it. You will see more and more BKs in the future because that is the course set by our 'money masters'. The underlying economy cannot support the amount of debt in play.
Well, you put into words better than I can.
I have already started to trade with our neighbors. A bit of wood to keep someone warm for consideration in a future when we or someone near us might need something. We have already did several transactions not involving money. Just straight trade or donation.
The Church (Non denominational) has gotten very powerful in identifying the weak, sick, tired and unemployeds among the Congregation and everyone is pitching in to do what they can. It's very motivating when you feel down and hopeless and 2000 people are pulling for you making a way.
If enough people reject and turn away from this current course that the USA is on and tell the Government "NO." enough! and make it stick (November elections maybe?) or perhaps even win it all lock stock and barrel and quickly repeal everything before it all unravels.
There was a abandoned house down the street that was burned out of spite by kids or by copper theives some time ago. Today three concrete trucks showed up to pour a new site for a new home to be built there.
There is money out there and work to be done. Just need to spend it wisely and make it happen the most. Not fritter it in I-Crapola that seems to litter every koisk in each walkway at Walmart.
You paid your bank.
Your bank stole from you via buying your Congressman's vote on TARP.
I see no moral quandary whatsoever.
Hahaha, my credit score looks like something the cat dragged in, but who really cares? I frequently dodge debt collectors for years at a time and no one has come to taze me yet. Given my experiences with credit cards, loans, etc., I never want any sort of credit ever again, except for one or two small in-house accounts for my business. On the ground level, that's where the concept of credit can work...no one wants to be an ass to the people upon whom they rely for necessary supplies, but why not let BofA or Citi or any of those other assholes just go sit on it for a little while? If it's a choice between food and utilities being paid on one side, or handing more of my money to the same banks that rob me blind every time I try to get ahold of my own money, then it's not even close to being a context. I'd probably have some remorse if they weren't looking to screw me at every turn or holding toga parties with the money that they collect in random and inscrutable transaction fees.
i think these data from this bloomburg survey should b enough to send the stock markets diving::
http://www.bloomberg.com/news/2010-08-22/home-sales-probably-plunged-and...
In our local paper trustee notices (foreclosure ads) still dominate the classifieds 4 pages to one (other ads) every single day. At the courthouse they had a six ft. x four ft. bulletin board to post the trustee notices on, it's been so packed with notices for the past four years that they put an 3x8 table below it which is stacked two foot high with notices.
Recently a lot in one upscale subdivision where lots sold for $200K+ was sold for $15K by a bank. It's getting pretty crazy around here.
Reversion to the mean? Typical statistical speak that appeases the masses...your natural conclusion is there's no underlying issue with the increase in bankruptcies, it's just "normal".
The change in bankruptcy laws introduced a "Means Test"--income versus "living expenses".
This test was the simple reason the number of Chapter 7 filings dropped considerably.
Many people who previously would have filed Chapter 7 and wiped the slate clean instead were faced with not filing or filing Chapter 13.
Chapter 13 is currently designed as a 5 year plan of indentured servitude to your creditors.
The fact that Chapter 7 filings are increasing so much is simply explained--families and household incomes have declined to the point where they qualify for Chapter 7. It is not your debt burden that qualifies you for Ch. 7 or Ch. 13, but your household income.
Interesting point about Chap7 as opposed to Chap13. I have a brother who is an attorney in rural northwestern Minnesota. He says he could do nothing but BKs if he so chose. He also says of the BKs he does, most of his clients want to do Chap13 as opposed to Chap7 because they either want to keep an asset like a second car, or they feel like its their fault they're in so deep and don't feel right "cutting and running" on their debt. He says the toughest and most common argument he has with these clients is showing them that they are in such bad shape they can't possibly pay their creditors at all and that Chap7 is really their only option. Also, the most common issue raised by the BK adjudicators is, "Why aren't you filing Chap7? No way you can handle Chap13." The American people are in such bad shape this is going to get much worse, and soon. Note that the Finance Industry was hollering to get the Biden BK Bill passed for years, before it finally did in 2005. Note that those years were flush times. Guess what happens now, a few years of non-flush times into a multi-decade DepRecession? Other posters are correct; we'll see some major tightening of the BK laws in the next few years.
The number of filings is certainly important. I wonder what the graph would look like if the dollar amount of the filings were graphed on the Y axis. Up to the law changes there was a ramp up in the number of filings, but I wonder if the amount of the debt was decreasing. Smaller and smaller debt balances were included so as to get under the wire. At the beginning of the "new regime" the number of filings decreased, sort of a new base line. Only the higher debt levels filed since the expense warranted it. As we move forward the debt levels for filings are probably decreasing? Attorneys have gotten the new rules understood and filers are finding it easier or more convenient or cheaper to file. If my intuitive thought is correct then filings could simply skyrocket from here. A new graph would show an inversely and correlative inverted curve set.
Debt? HA what an utter joke. Credit scores? Another utter joke.
Cash = King
"Now, with that said, I am very concerned about the unemployment checks running out on millions of people. There will be zero income zero bills paid, zero for the banks, zero for everything else and essentially despite my feelings, were bankrupt."
Keeping the unemployment checks coming helps individuals for a short time. Just realize that it is just a big ponzi scheme that will eventually end with tax payers holding the bag.
I think the latest law only allows Chaper 7 bankrupcy every six years. So there was the rush of filings into the new law, followed by a six year quiet period. I think many people will just file every six years as a matter of course. What a Country!
"Sweeeet?"
Time to bring back debtors prisons, only this time privatize them. What a great investment. I'm in on the IPO.
The U.S. Withdrawal and Limited Options in Iraq
http://israelfinancialexpert.blogspot.com/2010/08/guest-post-us-withdrawal-and-limited.html
Unless you are a direct beneficiary of ZIRP, why would ever want to borrow money? I can't find a compelling use of the debt proceeds.
not unless you can buy a bunch of hard to find physical assets and then default
I guess that works assuming the debt is non-recourse or you live in a country with the assets that has no extradition treaty with the country of the lender.
Thinking more about going in to debt to buy "stuff" in general - house, car, education, investments, iPad, etc. All of it I would describe as a collective waste.
"Don't be surprised however if the section before 2005 is cut off."
Ohhh hockey pucks.
I was beginning to feel bullish, which usually happens way before the markets turn. Now I have a stat to back up my bullishness.
More defaults means improved consumer cash flow and increased spending. Sure banks will have some long overdue short term pain. But they will forget when the next debt driven feeding frenzy happens.
I beleive US bankruptcy laws are an advantage to more quickly clear up bad investments and move on.
Why should big corporations get easier treatment when writing off debt?
cash flow cash flow cash flow
I think you're misreading the stats. Would an increase in food stamps mean bullishness in lobster and Moet?
@ORI
Yes, indeed. I filed the UCC 1 Financing Statement making my ALL CAPS Secured Party Creditor the owner of all assets including liens and debts of the ALL CAPS Debtor. Me a living being has recaptured the abilities to handle my commercial affairs as the agent of the CREDITOR.
To start the process, I wrote a letter to the Office of the Controller of the Currency. I outlined how the bank defrauded me during the Mortgage Contract. The Bank may do all of the fractional reserve stuff and handle the credit transaction , but legally under UCC it cannot withhold my credit! The bank also did not report the tax owned to the FEDs by filling the 1099-OID. I sent the complaint to the Office of the Controller of the Currency and the bank holding my mortgage. Three months later, the bank called me to ask what I wanted to get my house back. I told the bank that I would discharge my debt under the UCC, but would no longer be "paying" with cash. I demanded from them a new and final presentment (the mortgage payoff statement), a transfer instrument (a money coupon the bank prints up and sends with bills), and I would provide a Surety (a promise to pay with verbiage well establish). The bank did not respond. So I sent the bank all the paper work, plus a statement of my account showing -0- balance, a new contract that stated I was discharging all debt, and a confirmation letter that the account is discharged. If you understand the UCC, I have discharged all debt. When the bank doesn't respond, it is in dishonor and the discharge is valid and complete. Under color of law the presentment is presented, and under color of law the debt is discharged.
I plan to submit a new Deed of Trust listing me as owner and have it filed at the Recorder's office. I am in possession of the property, and my renters are still paying me. End of story.
The entire system is bankrupt, but yet a truly small # of people actually take the step to make it "official".....
Honoring contracts is going to be a thing of the past, real soon now.
GM bondholders got screwed, U.S. taxpayers got screwed with AIG and their counterparties...why should anyone, anywhere, at any time not consider walking away from obligations?
Start a business that lends itself to not filing 1099s, and roll onward.
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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