In 2005 Congress enacted a law to get consumers to look for alternatives to filing personal bankruptcy. The new law made it more expensive to file for bankruptcy protection, put tighter restrictions on qualifying for the protection with income limits and measuring the debtor's ability to pay their creditors, and mandatory credit counseling. Despite this new law, personal bankruptcy filings (Chapter 7 -- liquidating assets to pay creditors and Chapter 13 -- reorganizes debt for lower payments over a three or five year period) are up 38% from 597,965 in 2006 to 822,590 last year.

Simply put, (and this is no surprise) people owe more than they can afford to pay. With declining home values consumers cannot turn to the equity in their homes to pull them out of debt, be they credit card companies, mortgage lenders, auto loans or student loans. Peter Morici, an economist at the University of Maryland at College Park said, "Americans have been spending 105% of their income for the last three or four years".

Historically, bankruptcy filings were by those individuals who had sudden life crisis, (divorce, illness or job loss). Elizabeth Warren, a Harvard Law School professor and a bankruptcy expert has said, "The rise in bankruptcies is not about something that happened last week or last month, it's about the fundamentals. It's about declining wages, rising costs, inadequate health insurance, job instability. More hardworking middle-class families simply can't make it in this economy, and it's only getting worse".

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Chandra