U.S. citizens are going bankrupt at shocking rates. Statistics provided through the American Bankruptcy Institute show baby boomers are filing bankruptcy more than any other group. A recent study conducted by ABI reveals bankruptcy filing by individuals over age 45 have increased nearly 30-percent in the past ten years.

The percentage of Americans going bankrupt has increased nearly 70-percent since 2007. In 2008, 1.5 million bankruptcy petitions were presented to courts. In 2009, personal bankruptcy filings rose to nearly 4.5 million.

Financial experts claim the explosion of personal bankruptcy filings was caused by the mortgage crisis. Millions of borrowers obtained mortgages for bad credit with adjustable interest rates. When the banking crisis occurred, unemployment rates skyrocketed; leaving millions of borrowers unable to pay their home loan payments.

As property values declined and instability of mortgage lenders increased, many borrowers found they did not possess sufficient home equity to refinance mortgages. Borrowers who could not meet mortgage obligations or enter into mortgage refinancing were forced into going bankrupt in attempt to stop foreclosure.

The failure of the banking industry caused by Wall Street escalated consumer panic. Independent business owners and multi-billion dollar corporations closed their doors and entered into bankruptcy. Skyrocketing unemployment rates, loss of healthcare benefits, and credit card company crackdowns created financial turmoil not seen since the Great Depression.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted to curtail consumers from filing bankruptcy to erase unsecured loans and credit card debt. Prior to BAPCPA, consumers often filed for Chapter 7 bankruptcy. Known as ‘liquidation bankruptcy’, Chapter 7 allowed consumers to liquidate assets to pay outstanding debts. Remaining balances were written off and consumers were given a clean financial slate.

Today, debtors must repay a portion of debts under Chapter 13. BAPCPA requires petitioners to obtain credit counseling through an approved U.S. Trustee agency and develop a Chapter 13 payment plan. Petitioners must undergo the ‘means’ test to determine the amount of debt to be repaid.

The means test is a financial tool that compares debtors’ income to their states’ median income. When income falls below median levels, debtors might qualify for Chapter 7. Otherwise, they must file for Chapter 13. Chapter 13 payment plans typically extend for two to five years.

During the repayment period, debtors’ must contribute a large portion of disposable income toward repayment of debts. If debtors are unable to adhere to their chapter 13 plan, creditors can request the bankruptcy court dismiss the petition. When this occurs, debtors fail out of bankruptcy and lose protection from the court. Creditors can move forward with collection action and repossess property secured through loans; including real estate.

Going bankrupt is a painful, stressful and emotionally draining experience. However, it is important for consumers to maintain a positive outlook and learn about personal finance strategies to prevent financial catastrophes from happening again.

Consumers should take full advantage of the credit counseling requirements of BAPCPA and learn how to better manage money. Taking time to review expenses and income and develop a get out of debt plan can help consumers avoid going bankrupt or prevent it from occurring in the future.

Author Bio: California investor, Simon Volkov specializes in providing solutions to individuals going bankrupt. His website offers a comprehensive personal finance article library to help consumers avoid bankruptcy and develop wealth-building strategies. Discover bankruptcy alternatives at www.SimonVolkov.com.

Category: Finances
Keywords: going bankrupt,bankruptcy,chapter7,chapter13,chapter 13payments,fail out of bankruptcy