Southern California Deluged with Personal Bankruptcies

July 9th, 2009 | Tags: Foreclosure

bankruptcy

Reeling under the housing crisis and recession, southern California has been deluged with personal bankruptcies. In 2008 it had the highest number. Since April it has shot up by 75% - in spite of a ruling in 2005 restricting filing so that none could gain unfairly from doing so.

Becoming legally broke has once more made a return – more so in the Los Angeles region despite curbs put on the practice. The number seeking protection through bankruptcy almost doubled in 2008 in comparison to 2007 in the bankruptcy courts covering seven counties of California Central District. This is the biggest increase in the country.

Bankruptcy has suddenly started booming. Experts say that this is largely due to the foreclosure crisis. It has hit hard those who took risky loans. This has combined with increasing credit card dues and medical bills. It was never imagined that bankruptcy courts would see people lining up with petitions waiting for their turn.
Professor Robert Lawless of University of Illinois said, “California has been one of the biggest climbers in the filing rate in the last few years. I attribute a lot of that to the foreclosure problem.”

The drama is enacted on weekdays in the bankruptcy filing office of downtown Los Angeles. During 2006 and 2007 there was hardly any activity here. But today about 20 people wait in the corridors before the doors are opened.
Some rush in to stop foreclosure sales with only minutes to spare. A bankruptcy filing puts on hold a foreclosure sale. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was drafted to keep out people who could pay debts from the reaping the advantages of bankruptcy filing. At the root is an effort to find out if the borrower has the ability to repay debts before allowing the filing of Chapter 7 bankruptcy. This along with Chapter 13 is mostly used.

When Bush signed it into law he had said, “Too many people have abused the bankruptcy laws. They’ve walked away from debts even when they had the ability to repay them.” But Lawless opines after citing many instances that the revision has only made it difficult for legitimate bankruptcy filers and the charging of extra fees by attorneys. He said, “The effect was that people are arriving in Bankruptcy Court in worse financial shape.” Maureen Tighe, judge at bankruptcy court spoke along similar lines. She said, “The changes just made it more expensive for people to file.”