Bankruptcies Rose as Job Losses, Foreclosure for Sale Rose

The number of bankruptcy cases filed by businesses and individuals increased to 1.3 million in the 12-month period ended June 30, according to the Administrative Office of the U.S. Courts.

It was the third consecutive yearly increase, as waves of repo houses for sale battered the housing market and led to a recession that caused business closures, job losses and increased consumer debts.

Bankrupty cases filed by businesses increased by 63 percent while bankruptcy cases filed by individuals increased by 34 percent.

Carey Ebert, head of the National Association of Consumer Bankruptcy Attorneys and partner at Texas-based Ebert Law Offices, said that the increase in bankruptcy filings reflects the overall condition of the U.S. economy. He added that bankruptcies increased during the past months even in areas that previously were doing well because of job losses and continued foreclosures.

According to the Administrative Office, the increase in filings occurred in all bankruptcy types. Filings for Chapter 7, the most common filing for individuals, increased by 47 percent. Filings for Chapter 11, the most common filing for businesses, increased by a staggering 91 percent.

In the second quarter of this year, bankruptcy filings increased to 381,000, a significant jump from the 330,000 filings in the first quarter and from the 301,000 filings in the last quarter of 2008.

Total bankruptcy filings in the second quarter marked the highest level reached in a quarter since 2005, the year new regulations took effect to make it more difficult for individuals and businesses to get court approval for bankruptcy.

The jump in bankruptcy filings could resurrect bankruptcy revamp proposals, including the proposal to authorize judges to modify the terms of home loans to make them more affordable. This particular proposal was rejected by senators earlier this year after the financial services industry used all its resources to force senators to defeat the proposal.

According to testimonies presented in Congress last month, the ratio of bankruptcy filings to judgeship has risen to 60 percent in the past few years. Congress is now studying a proposal made by the Judicial Conference of the U.S. to make permanent 22 temporary judgeships, add 13 permanent bankruptcy judgeships, and extend 2 temporary judgeships for 5 years.

Additionally, District Judge Barbara Lynn, chairman of the Judicial Conference Committee on the Administration of the Bankruptcy System, said that bankruptcy filings now are more complex than previous filings, such as those filed by Chrysler and Circuit City.

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