People experience financial difficulties all the time. Job losses, medical bills, divorces, plunging home values & general overspending on purchases can drive consumers into debt to maintain their lifestyles. Debt levels can become so large that they are difficult to manage & full repayment may not be entirely realistic. The rise in consumer debt levels has gotten a lot of attention recently - all of these purchases have to be paid for sometime.



Apparently, many people were using the credit afforded them by the credit card companies to fund their purchases. And while it may not be something that they want to do, people are sometimes forced to consider filing for bankruptcy when they run out of other options....

For some people, budgeting is a skill that was never fully learned in the first place. After all, did your high school teach a basic course in budgeting? If it's like most high schools, probably not. The credit boom of the last 20 years allowed people to buy new cars, big houses, and expensive college degrees.

Plasma TVs, home furnishings, and every other type of consumer item that high tech manufacturing and cheap foreign labor yielded was seemingly bought by the truckload. Case in point: Ever been in a Best Buy on a Saturday? Given the number of people buying things, you'd think they they are giving stuff away...

But, many consumers eventually need to face their financial situations when it doesn't look like it will be realistic to think they'll be able to service their debt loads. Regardless of whether their past purchases were necessary or not, principal amounts & fees can rapidly add up for people who didn't plan ahead accordingly or who experience job losses. And high levels of unexpected debt can result from extended hospital stays or prolonged illnesses.

Furthermore, the combination of these factors can add up too fast for some consumers...

So, how does bankruptcy play into all of this? When debt levels skyrocket & debts become unmanageable, some people start considering filing for bankruptcy.

After all, it takes money to buy things. And that money spent turns into debt if it's not paid off.

Bankruptcy was, in the past, used as a quick & easy way for many consumers to get a fresh start- debts were discharged and the world continued. However, in 2005, Congress passed the The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA for short) to deal with perceived abuses of the bankruptcy system. Apparently, this act was meant to expand the pool of consumers who file for Chapter 13 bankruptcy instead of Chapter 7.

Chapter 13 bankruptcies generally focus on getting the individual to reorganize their finances by designing debt repayment plans. This is in contrast to regular, Chapter 7, bankruptcy where the focus is more on the debtor being given a "fresh start" by discharging certain unsecured debts.

The question really is, did the consumers filing for bankruptcy these days spend too much during the credit expansion of the last 20 years? Will more of them turn to filing for bankruptcy because of the debts resulting from their purchases? Furthermore, have the full effects of declining home values in some markets & adjustable rate mortgage resets fully run their course?

The US may yet to have seen the last of these effects as we end the decade...

With 2008 expected to yield more than 1 million bankruptcies in the U.S. It seems likely that more consumers will be dealing with questions this year and in years to come if trends continue.