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Bankruptcy in Pennsylvania, Part 1

In desperate times, bankruptcy protection is a personal-business decision


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 Pennsylvania

In other words, from New Castle to Bradford, Scranton to Bethlehem, Philadelphia to Pittsburgh, Altoona, Harrisburg or Wilkes-Barre, no one considering filing for bankruptcy protection in Pennsylvania is doing so alone.

And, yes, Pennsylvania's numbers are down from June 2010 to June 2011; however, recent indications of lost income nationwide have some officials concerned that the country should be bracing for another recession: these both are topics we'll return to, shortly.

Hanging on, hoping for a turnaround

The truth is, the number of U.S. consumer bankruptcy filings in 2011 likely will be nearly as high as in 2010. True, even a few percentage-points' improvement nationwide is nationwide, as it may indicate we've reached an economic bottom. Still, whether you're in an urban area such as Harrisburg, which itself is facing a Chapter 9 Municipal Bankruptcy, or a relatively more stable rural area, it really doesn't matter that Pennsylvania's overall rate went down slightly more than 3 per cent from 2010 to 2011 (see Table F2 under "Related Items," at the U.S. court's news release).

Bankruptcy a business decision--and not only for businesses

The fact of the matter is that when you have no other realistic option for a fresh start, filing for bankruptcy protection is the most businesslike decision you can make. Of course no one with a shred of personal integrity creates a business or starts a household with the intent of filing for bankruptcy protection. But let's consider only two recent business examples: GM and Chrysler: critics of their bankruptcy cases say things such as, "We should let them fail." The problem with that is the number of  working people who would be hurt, not only the direct employees but also those who work for all the subcontractors.

It's the same for a household: a personal business decision, based on the best outcome for you and your family.

Consumer, help thyself

And, let's face it, if you're staring into the financial abyss, Congress isn't going to send the cavalry to your rescue. They had a chance in 2009 to help established homeowners by allowing judges to modify terms of the loan on a person's primary residence but failed to pass the bill. They've also dismissed the idea of helping younger folks, students with large student loans who paid for college degrees only to find a mean, meager job market after graduation.

Suze Orman, the financial adviser, recently commented on the Occupy protests with some insight into falling income, even though the Great Recession supposedly ended in 2009:
The recent New York Times' report that inflation-adjusted median household income declined 7.6% from June 2009 to June 2011 has garnered much attention. While plenty bad enough, that income drop is really just an emphatic exclamation point to disturbing long-term trend. Adjusted for inflation, median household income has gone no where since the late 1990s. So much for shared prosperity.

As we all know to make up for the lack of income gains, American households borrowed plenty in the '90s and all the way up to the financial crisis. Yet the response to date has been to bail out the banks but offer virtually nothing to overextended homeowners who are hopelessly underwater on homes. Yes, I am well aware of the various federal housing assistance programs that were launched in the wake of the crisis. But they have been failures.

Next: In Part two--The purpose of bankruptcy, BAPCPA, the means test and safe-harbor provisions.

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