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Comparing 2007 to 2009

Chapter 7 Bankruptcies in San Diego have increased three fold since 2007 and is currently set to break another record for filings this quarter (Q3 2009) since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was written into law.

There is an obvious increase in Chapter 7 (visit the link to visit the US Court web site for a Chapter 7 bankruptcy basics page) bankruptcy claims stemming from the credit crunch that hit America in October 2008. Bankruptcy filings were one of many indicators in our financial system that pointed to an increase in debt loads which correlated to the overall unmanageable risk to the system. However, although the collapse of our financial system has contributed to an increase in fillings, the numbers have in fact been increasing since late 2006.

A steady incline in the total number of Chapter 7 fillings for the San Diego area, depicted in the graph above, highlights the trend. This evidence was expected ever since the recession began, however, it also serves as a sobering reminder that the problems began long before the credit crisis hit the economy.

Chapter 7 filings, the most common type for individuals, were up over 200% in the first quarter of 2009 compared to the same period in 2007. (3292 in 2007 Q1 v. 12622 in 2009 Q1). In fact, every quarter since Q4 of 2006 has seen an increase in filings compared to the preceding quarter.

This graph outlines the increase in filings from Q1 2006 to Q2 2009 (13 quarters) described in percentage increase for each subsequent quarter. Notice in the line graph that since Q4 2006 you can see that every single quarter is above the horizontal line which depicts zero (unchanged). Anything above the line represents an increase in the number of filings in that period compared to the previous quarter.

The best case scenario regarding bankruptcy claims would be numbers under the 0 horizontal line. Instead each period increases by at least 10%.

This is indicator describes that the number of filings in San Diego are still increasing and will likely increase for Q3 2009 when those results are released later this month.

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.

Cecilia commented that the increase in Chapter 7 fillings doesn’t appear to be slowing.

Families are coming in more and more to file for Chapter 7. They generally do not have enough income to qualify for Chapter 13.

I do think that Chapter 7 and 13 bankruptcy filings will continue to increase in year 2010 and beyond because unemployment has not abated and we are currently in a false sense of stability. Next year, government interventions will start to disappear, shadow inventory (houses that banks now hold but have yet to put up for sale) will hit the market and mortgage rates will start to rise. I’m also seeing credit card companies are also increasing the interest rate and minimum monthly payments, creating a significant hardship on many families in San Diego..

When asked to outline important early steps in bankruptcy exploration Cecilia highlighted:

Collect the necessary documents and information needed for me to prepare you bankruptcy petition and schedules such as: a list of assets, debts, and lawsuits, names and addresses of everyone you owe money to, pay stubs from the last six months, tax returns for the past two years, addresses and account numbers for all your bills and collection agencies, loan documents for both real estate and vehicles, as well as titles and registration for all vehicles owned.

Although 2009′s numbers are not the highest they’ve ever been, 05 and 06 remain the 1 and 2 respectively, there has been a steady increase since 2007 (remember as well that legislation changed in 2005).

The number of claims in San Diego are going up reflecting the need people have regarding their financial security in the future. Conducting as much research online as possible, and contacting a bankruptcy attorney are necessary steps to ensure you are making prudent and informed decisions.

If you find yourself as one of the many people looking to file for bankruptcy then contact Cecilia Chen for a consult.

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