Overleveraged and Overburdened: American's Are Filing For Bankruptcy

In a previous blog post, I pointed out that the amount of credit card debt held by Americans has fallen substantially.  The reason for this is that more Americans are filing for bankruptcy to reduce the amount of debt that they owe.  This WSJ Real Time Economics post says it all.  A new report by the American Bankruptcy Institute says that bankruptcy filings have reached their highest level since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  Through the first six months of 2010 consumer bankruptcy filings increased to 770,117.

The explanation given and where bankruptcy will be heading:

"Years of rising consumer debt and low savings rates, combined with the housing and unemployment crises, are causing bankruptcy levels not seen since the 2005 amendments to the Bankruptcy Code," said ABI Executive Director Samuel J. Gerdano. "We expect that there will be more than 1.6 million new bankruptcy filings by year end."

Bankruptcy might be the way to go because it will lessen the burden on the true spenders in the country and thus we may see a pick up in consumption that is directly related to the increased bankruptcy filings.

 The latest data is not reflected in the graph but imagine one more bar for 2010 and imagine it being taller than that of the 2005 peak.  Everyone who reads this needs to check out the interactive graphs and resources that the American Bankruptcy Institute provides.