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Consumer Bankruptcies Up Nine Percent In 2010

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More and more U.S. consumers, buffeted by heavy economic winds, are crying “uncle” and doing the once unthinkable – declaring bankruptcy.

According to the American Bankruptcy Institute, citing data from the National Bankruptcy Center, U.S. consumer bankruptcies shot up by 9% in 2010 – the highest rate since 2005.

Don’t expect the news to get any better this year.The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth,” said ABI Executive Director Samuel J. Gerdano. “We expect that consumer filings will continue to rise in 2011.”

[Related: Bankruptcy Survival Guide]

The National Bankruptcy Center data was accumulated by Prof. Ronald Mann, from the University of Columbia Law School, and released on January 4, 2011.

He estimates that about one out of every 150 U.S. adults has entered into bankruptcy. Mann also says that the bottom half of the country is taking the biggest financial beating, bankruptcy-wise.

“Through the course of 2010, the filing rates have become increasingly disparate throughout the country, Mann writes in his report.”The highest filing rates are concentrated in the Southwest (Nevada heads the list), and a swathe cutting up from the Southeast.”

Georgia and Tennessee rank second and third in state bankruptcies.

Why the spur in bankruptcies rates? Mann and the ABI point to the 2005 bankruptcy law that made it tougher for consumers to walk away from their debts. That law, coupled with the recent recession, which made it harder for Americans to find jobs and credit, has helped drive bankruptcy rates upward.

[Infographic: One Bankruptcy Every 15 Seconds]

Gerdano says that Americans are trying to cut their personal debt levels, but with mixed success. Increasingly, that 2005 bankruptcy law has worked against consumers who try to rise above bankruptcy.

“The (2005) law was supposed to reduce filings, but we are very close to levels we were at then,” Gerdano said. “The laws of economic gravity are more powerful than the laws passed by Congress.”

To consumers who’ve thrown in the towel, those are hardly comforting words.

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