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Bankruptcy in Arizona, Part 1

Few realize bankruptcy protection is in the Constitution


Overview of bankruptcy filings in the U.S.

An August 2011 news release from the U.S. Courts says, "According to statistics released today by the Administrative Office of the U.S. Courts, bankruptcy petitions filed in the 12-month period ending June 30, 2011 totaled 1,529,560, down 2.7 percent from the 1,572,597 bankruptcy petitions filed in the 12-month period ending June 30, 2010.

"Despite the slight drop in overall filings nationwide, the number of bankruptcy filings increased in 19 of the 94 districts. The largest percentage increases in bankruptcy filings were in the Southern District of Florida, with a 15 percent increase over 2010, and the Districts of Utah and the Central District of California, where filings for the 12-month period ending June 30, 2011 increased 13 percent over 2010."

A quick comparison with Arizona

From Sierra Vista to Tuba City, from Yuma to Flagstaff, Phoenix and Tucson, Arizona residents from rural areas to metropolitan regions are aware that the Grand Canyon State has been among the hardest hit by The Great Recession. According to the U.S. Courts' Bankruptcy Statistics, 34,290 bankruptcies were initiated in 2006 while only 8,490 were filed in 2007, representing a year-to-year decline of 75.2 per cent as the recession was beginning.

However, as the recession began to take its toll, filings in 2008 rose to 12,267, a year-to-year increase of 44.5 per cent--but the economic train was just leaving the station. In 2009, the number jumped to 22,393, an astonishing leap of 82.5 per cent from the preceding year.

In 2010, nearly 38,000 cases were filed (37,890)--another year-to-year increase of 69.2 per cent and more than had been filed in 2006. By June of 2011, another 42,403 cases had been filed. At a year-to-year increase of "only" 11.9 per cent, the first percentage decrease since 2008--but still rising.

OK, but what exactly is bankruptcy?

Although these numbers tell a frightening tale of the number of people hurt during the financial crisis fueled by lack of government regulation and the excesses of the finance sector commonly referred to as Wall Street, they also offer hope for a new start. In the USA, we long ago recognized the folly of sending people to debtor's prison, where they could no longer service any debt at all and were removed both from the economy and the tax base.

In fact, bankruptcy is in Section 8 of the Constitution, listed among the several powers that Congress shall have (namely): "To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States. . ."

The powerful protection of the Bankruptcy Code

In other words, we, the people, have not yet been recognized as being "too big to fail"--but every individual (and business) is recognized as "too important to jail." That recognition has led to the codification of the federal bankruptcy laws contained in Title 11 of the United States Code. Known collectively as the Bankruptcy Code (or, simply, "the code"), together these statutes provide a powerful tool against harassment by creditors and illegal collection practices. Immediately upon filing, for example, creditors are ruled by an "automatic stay" from the U.S. Bankruptcy Court. This stay prevents them from contacting you anymore and says they must now work through the federally mandated procedures within the Bankruptcy Code.

That, alone, is often cited by debtors as a great relief as they get on about their lives and the business of starting over.

Next"Bankruptcy in Arizona, Part 2": the Arizona bankruptcy court; judge-specific rules; saving a home.

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