Personal Bankruptcies Rise as Troubled Economy Takes a Toll

[Oct 27, 2008.]

 

About 1.1 million people are expected to file for bankruptcy this year as foreclosures, unemployment, high energy costs, and other problems with the economy take a toll on U.S. households. The American Bankruptcy Institute says consumer bankruptcy filings rose 29% in September from a year earlier.

Personal Unsecured Loans

About 34% of consumers filed for Chapter 13 bankruptcy. That means that a payment plan was set up to repay personal unsecured loans. This structure works for people who have a regular income that can go toward paying back personal unsecured loans, which don’t require any type of collateral such as a home or car.

While filing for bankruptcy is a way out of a deep debt hole, there are many reasons to avoid going down this path. But most importantly, filing for bankruptcy will trash your credit rating. Not only will you have difficulty obtaining a mortgage, but you'll have a tough time qualifying for auto financing any kind of personal loan. A bankruptcy filing will show up on your credit report for at least 10 years.

Bankruptcy Is a Last Resort

However, if you have no other choice but to file for bankruptcy because you’re in over your head with personal loans, credit cards, or other types of debt, make sure you get guidance from a bankruptcy attorney. They will help you determine if you should file for Chapter 13 or Chapter 7. A Chapter 7 filing will be easier and less expensive than Chapter 13. Your personal unsecured loans and credit cards will be wiped clean and you should be able to keep your car and home.

No one wants to end up in bankruptcy court. But if you do, hopefully taking this step will help you get back on your feet and begin rebuilding your credit rating.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.