The number of U.S. businesses and individuals declaring bankruptcy is rising with a vengeance amid the recession, despite a three-year-old federal law that made it much tougher for Americans to escape their debts, an Associated Press analysis found.
"There's no end in sight, it is depressing" said Hoffman Meyer Associates CEO, Douglas Morgan.
Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records collected and analyzed by the AP. Last month, 130,831 sought bankruptcy protection, an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.
The Hoffman Meyer Associates CEO went on to say “Bankruptcies could reach 1.5 million this year and level off at 1.6 million next year.”
Congress voted in 2005 to make bankruptcy more cumbersome after years of intense lobbying from the nation's lenders, who complained that people were abusing the system. Before the move to change the law, bankruptcies were running at what was then an all-time high of about 1.6 million per year.
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.
"You wouldn't get this large of a rise without serious problems in the economy," Morgan said.
The bankruptcy rate is climbing as well. In the past 12 months, about four people or businesses for every 1,000 people in the country filed for bankruptcy, according to the AP analysis. That is twice the rate in 2006, and close to the average of about five for every 1,000 in the decade leading up to the change in the law.
Morgan said “The shame of bankruptcy may have eased somewhat in recent years,” but added, "It's still a very stigmatizing, traumatic event for most everyone who files."
Previous recessions also drove people to bankruptcy court, though those increases were more moderate. Bankruptcies went up 19 percent amid the economic contraction in 2001, and about 15 percent during the recession of the early 1980s, according to the Administrative Office of the U.S. Courts.
Hoffman Meyer Associates is Seattle's leading merger and acquisition, business brokerage firm. As a mergers & acquisition firm, our principals have completed scores of transactions of privately and publicly held companies during the past 25 years.
Over the years, our firm has developed strong relationships with companies and individuals that are ancillary to the mergers & acquisition process including banks, mezzanine lenders, asset lenders, transaction attorneys, certified public accountants, and financial planners. We are also affiliate members of leading merger & acquisition, business valuation, accounting and brokerage associations.
