As we spiral down the debt cycle - a cycle that was masked during the housing boom by mortgage equity withdrawals - things will get much worse. There are two rock bottoms on the debt spiral - foreclosure and bankruptcy. Some people are choosing foreclosure, while others look to bankruptcy as the way out. This Newsweek article called Bankruptcy: Chapter 11s on the rise takes a look at current bankruptcy rates and issues.
The article starts out with a story about a woman who bought a new home before selling her old home and ran into financial trouble. This is a story we hear over and over again. Something that was common during the bubble since housing were selling themselves, but in normal times owning two houses can be a huge financial strain. So back to the story, the woman was going to file bankruptcy but instead is working with a credit counselor who modified her interest rates. Wonder why Newsweek did not include someone who filed bankruptcy in a bankruptcy story? With such high numbers I am sure someone would tell there story. So lets look at what the article does discuss:
... Despite the increased cost and inconvenience of declaring personal bankruptcy as a result of legislation passed three years ago, filings have jumped substantially in the last few months. More than 4,000 bankruptcy petitions were filed per day in March and April, on average, according to the bankruptcy data and management firm Automated Access to Court Electronic Records (AACER). That's up more than 30 percent from a year earlier and the highest number since the law went into effect. "There's a real sense of financial panic out there," says John Colwell, a bankruptcy attorney in San Diego who has seen his business increase 50 percent in the last year. "And I don't see it abating anytime soon."
...Squeezed by rising costs for everyday necessities like gas and groceries and unable to tap into their homes for temporary relief—declining values have left some people owing more than their homes are worth; it's also more difficult to get home equity lines of credit or loans—many people have turned to their credit cards "as a last resort," says Robert Lawless, a professor of law at the University of Illinois who follows bankruptcy trends. Once they max out their cards, they find it hard to keep up with payments.
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Consolidated Credit Counseling Services Inc. founder Howard Dvorkin says his Florida-based nonprofit organization fields about 1,800 calls a day now—up from 1,000 a year ago—and, unlike in previous years, they're coming from consumers across all income levels. "You always saw people who were struggling, living off their credit cards," he says. "But what I see now are upper-middle and even upper-class people having the same problems."
The financial woes seem to be increasingly widespread geographically. The problems were once concentrated in areas like California and Florida, which have been hit hardest by foreclosures and plummeting home values. But bankruptcy filings are now up across the country, with sharp rises in the past few months in states like New Jersey, Ohio, and Oregon—where the number of filings has nearly doubled since January, according to AACER data.
The credit crunch and rising prices are hurting almost everyone from coast to coast. People are using credit to stave off making drastic cutbacks and hard choices. We have been doing this for a while, but when credit was almost too easy to get the problems went unnoticed. Now the downward spiral appears on the express track - things are happening so fast with people's debt problems that it is hard to know what all the problems will be and where they will surface. From one boom to the next, one brought a happy facade the other is bringing real misery.
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