1430 Broadway, Suite 1802, New York, NY 10018 • 8605 Santa Monica Blvd #47620, Los Angeles, CA 90069

3 Reasons Why Bankruptcy Filings Will Surge In 2012

Bankruptcy filings should swell in 2012. Given the fact that I’m making this prediction after two months of 2012 have flown by, this may be seen as a case of, “too little, too late.” I assure you, however, that this isn’t the case.  In fact, thus far 2012 has been a down year for bankruptcy filings.

In spite of the numbers as they stand at the end of February, I’m convinced we’re in for a rise in filings over the year as a whole.

Follow along with me and you’ll see there are three reasons why I’m making such a bold claim.

Foreclosures And Bankruptcy

According to a recent article in the L.A. Times, there are approximately 3.5 million seriously delinquent mortgages in the U.S. Banks have been sitting on these loans for a while, but that is about to change. Now that the robo-signing scandal has been resolved, lenders are poised to begin aggressive foreclosure actions.

In light of the coming surge in foreclosures, it’s a safe bet that bankruptcy filings in 2012 will top the 1.6 million bankruptcies filed in 2011. Two particularly compelling reasons for someone facing foreclosure to file for bankruptcy protection are the imposition of the automatic stay and avoidance of cancelation of debt income tax.

Apart from the foreclosure issue, in districts where unemployment remains stubbornly high, there may be an additional bankruptcy filing surge due to protracted income problems.

Therefore, we should expect housing prices to fall a bit during the coming year. Why is this important to you? Depending on where you live, if you’re interested in buying real estate, it’s probably a good bet to wait until the market drops even further.

The Continuing Death Spiral Of The U.S. Economy

What about the U.S. economy as a whole? Recent news indicates that Congress will increase the debt ceiling by at least $1.2 trillion in 2012 – so expect a budget deficit of at least $1.2 trillion for 2012. Given that recent budget deficits have been $1.4 trillion (2009), $1.3 trillion (2010), and $1.3 trillion (2011), we will have added $5.2 trillion to the national debt during the 2009 – 2012 period. If the 2012 deficit really is $1.2 trillion, this means that the national debt will be $16.2 trillion by year’s end.

Take $5.2 trillion, divide it by $16.2 trillion, and multiply by 100 to convert to a percentage, and you’ll see that about 33% of the debt accumulated since the Revolutionary War will have been accumulated during the 2009 – 2012 period! (All right, I lied about boring you with a little math.)

Why should we care? After all, don’t we just owe the money to ourselves? No. A lot of the debt is owed to foreign countries, from whom we must continue to borrow to maintain the fiction of solvency. However, eventually we’ll have to face the music when the debt grows to the size of GDP.

What can we do? Given the leadership we currently have in both the executive and legislative branches, and the leadership that might replace it, I don’t anticipate any changes that will address these problems.

It’s Not Just Us – The Entire World Is Imploding

So what about the world at large, from whom we are borrowing substantial amounts of money? At the risk of sounding a bit like Chicken Little, in Europe the economic sky is falling. The financial woes of Greece and Italy have been in the news for some time now. What has been less emphasized is the intractability of the Greek problem. Unless some deus ex machina steps in to save the day, it looks like Greece is headed for a catastrophic default.

If Greece melts, all of the euro-zone will come crashing down.

An additional fact that un-gilds the lily is China’s slowdown. China’s economy has been racing for about twenty years now, but recent data indicate that things are weakening. Therefore, it is unlikely that the Chinese will be willing or able to bail out Europe—dashing the hopes of many who believed China would serve as Europe’s paladin.

As a result of this cheery news, many financial prognosticators are predicting a severe worldwide recession, starting in mid-2012.

What Can You Do?

What can you do? If you’re saddled with a lot of debt, get rid of it – either in bankruptcy, or through asset liquidation. Then sit on the sidelines until good deals show up.

If you don’t have debt, stay that way. Otherwise, you may find yourself in your own mini-Greece.

Nick Gebelt is a board certified specialist in consumer bankruptcy representing individuals, married couples, and small businesses in Chapters 7, 11, and 13 in Los Angeles and Orange Counties, California. He can be found at www.goodbye2debt.com and also writes the Southern California Bankruptcy Law Blog.

Learn Your Student Loan Rights (FREE)

Enter your email address to get my free 6-part Student Loan Roadmap delivered to you by email.

Powered by ConvertKit
By |March 2nd, 2012|

About the Author:

Share
Tweet
Pin
Share1
Reddit