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In October, more than 100,000 consumers filed for bankruptcy protection, a 40% increase from the year before. Total filings for the year are on track to exceed 1.1 million, according to Sam Gerdano, the president of the American Bankruptcy Institute.
Exceeding the 1 million benchmark is significant because it was that level of filings that prompted lenders to start lobbying for the bankruptcy changes that went into effect in October 2005.
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That law essentially doubled the cost of filing a bankruptcy case but failed to address the root causes of bankruptcy, as I wrote in "Lenders create a bankruptcy monster."
So it's no surprise that filings are up, and they're likely to get much worse as the economy suffers, layoffs climb and home values plunge.
Why you should care
Currently, homeowners find little relief in bankruptcy court from crushing mortgages. A bankruptcy filing can temporarily stop a foreclosure, but the timeout does little good if the borrower can't catch up on payments in short order.Durbin's change would offer real relief from bad mortgages, and it would inevitably swell bankruptcy filings by hundreds of thousands of cases. But that would ultimately be a good thing, both for families losing their homes and for the rest of us, if the rate of foreclosures is slowed.
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As our neighbors sink, they're taking our financial futures with them as well.
If you agree, contact your congressional representatives now. You can find your senators here, and this link will help you find your House representative. Here's a sample message:
"Please help stem the tide of foreclosures. Approve legislation that would help troubled borrowers save their homes, and give bankruptcy judges the ability to modify mortgage terms. Thank you."
Published Dec. 4, 2008
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