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Debt Management Guide 2008
Debt treadmill
Savings are at an all-time low in America, while the debt load continues to climb. How bad is it?
Debt treadmill
How bad is bankruptcy problem?


Everything old is new again, especially when it comes to bankruptcy.

Filings dropped after the federal government amended the bankruptcy rules in October 2005, but the numbers are rebounding, according to figures from the American Bankruptcy Institute, ABI.

In the 15 years prior to the rules change, there were roughly 1.5 million bankruptcies annually -- 90 percent of them for individuals, not businesses, according to the Institute.

“We are getting closer and closer to those numbers,” says Jack Williams, resident scholar for the ABI.

In 2007, there were 800,000 filings. This year, the institute forecasts that number will increase 50 percent to 1.2 million. "We're in that neighborhood already," Williams says.

In fact, the new bankruptcy laws may have inadvertently contributed to the mortgage crisis, says David Wyss, chief economist for Standard & Poor's.

Under the old rules, "you could go through bankruptcy and keep your house," he says. Under the new system, that's more difficult. As a result, "there's less incentive to pay the mortgage first" when tough financial times hit, Wyss says.

One historical trend that's also held: The majority of bankruptcies are Chapter 7 liquidations, where the court and a neutral third-party has gone through the consumer's finances and agree that the individual is totally broke with no other means of repayment.

So how common is bankruptcy, either Chapter 7 or Chapter 13? At this point, one in every 150 households has gone bankrupt at one time or another, says Williams.

"It's a common occurrence in our economy," he says.

Is your bankruptcy debt a problem? Check these tips to see what you can do about it.

Click on a category below.
How bad is it?
-- Updated: June 16, 2008
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