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2009 bankruptcy has finally been collected for the San Diego MSA and the data doesn’t paint a positive picture to support economic recovery. For the 12th consecutive quarter the number of Chapter 7 claims made in the San Diego area hit an all time high (since the law was changed in 2005). The information does not bode well for support any claims of sustained economy recovery in the San Diego economy.

The picture blow graphically represents the increase in Chapter 7 claims in each quarter since 2007 including the quarter 4 2009 all-time high number of 16,339.

The main contributor to the increase in bankruptcy declaration stems from the largest asset that the majority of consumers hold–their homes. The burden of large debts such as mortgages and credit lines has placed many in a position to make necessary personal financial recovery steps. This has lead to some confusion for some.

It also important to understand the logistics of filing for bankruptcy if you find yourself in that situation. Bankruptcy attorney Cecilia Chen had this to say about the increase in bankruptcy proceedings and how some homeowners have been surprised with what they owe after filing:

There has been an increase in bankruptcy filing from many former homeowners whom were surprised to find out that they still owe on the difference between what they owed on their mortgage and what the bank could sell it for at auction. After the banks foreclose, it’s very common to have large deficiencies with houses that were sold below the balances owed. It can also happen to people who got their bank to approve them selling their home for less than it is worth if the loan has been refinanced and/or if the second mortgage loan proceeds were not used to purchase the home. It’s a mistaken belief held by many that the deficiency can be negotiated away or simply disappear.

The news isn’t all doom and gloom, however. The percentage change between Q3 and Q4 2009 Chapter 7 claims in San Diego was actually down slightly to just over a 6% increase. This means that although Chapter 7 claims have increased to an all-time high, that increase has been accumulating at a slower rate than previous months. When Q3 data came out we wondered if the percentage change in claims would continue to fall, it has as pictured in the graph below.

The economy is still showing signs of weaknesses as more people file for bankruptcy protection. This makes the wait for Q1 2010 data even more interesting to see whether San Diego will see another time high Chapter 7 filing high, or a decline. It is likely that more stable economic recovery numbers particularly in the housing sector need to emerge before we’ll see a noticeable decrease in Chapter 7 claims.

If you find yourself as one of the many people looking to file for bankruptcy then pay attention to some important tips from our bankruptcy attorney Cecilia Chen.

If you have further questions about Chapter 7 bankruptcy proceedings contact Cecilia Chen for a consult.

* All data, not including graphs, are courtesy of RAND California.