The number of U.S. businesses and individuals filing for bankruptcy is rising with a vengeance amid the recession, despite a three-year-old federal law that sought to limit the number of bankruptcy filings.
Congress voted in 2005 to make filing bankruptcy more difficult and more expensive after years of intense lobbying from the nation’s credit card companies and other lenders, who complained that the majority of bankruptcy filers were abusing the system. In reality, abuse was committed by only a minuscule percentage of bankruptcy filers and the new law punishes the vast majority of filers who are good people in genuine need of financial help.
The tighter requirements initially appeared to work, with bankruptcies plummeting from a record-shattering 2 million cases in 2005 — a total that reflected a rush to file before the new law took effect — to 600,000 in 2006. But now bankruptcies are booming again. Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records. Last month, 130,831 sought bankruptcy protection — an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.
Take Kathy Stevens as an example. She and her husband opened a tea and coffee shop in August 2007. The business prospered, doing quite well until a nearby gym that many of her customers frequented closed its doors which in turn caused the coffee shop’s business to drop off. The Stevens spent more than $35,000 as they struggled to keep their coffee shop afloat, drawing on their own money and donations from family. After working from 6 a.m. until almost 10 p.m., seven days a week for months on end, the Stevens finally realized that they were fighting a losing battle. The couple filed for bankruptcy two weeks ago.
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Source: Mike Baker, The Associated Press.
