There's good news and bad news in the May 2010 report by the American Bankruptcy Institute. On the positive side, May consumer bankruptcy filings were down six percent from April. Unfortunately, filings were up nine percent over May 2009, with a total number of Chapter 7 and Chapter 13 bankruptcy filings of 124, 838 this year.

According to Wall Street Journal writer Paul Ausick, bankruptcy filings in the second quarter of 2010 are likely to reach approximately 390,000, an all-time high.

The percentage of consumer bankruptcies filed under Chapter 7, 74 percent, was also down slightly from April numbers but higher than last year's percentage. Despite the 2005 bankruptcy law intended to force most filers into Chapter 13, the number of consumers qualifying for Chapter 7 averaged 71 percent in 2009 but rose to 73 percent in the first quarter and 74 percent in the first two months of the second quarter of this year.

According to Ausick's analysis, many consumers are filing for bankruptcy because they cannot make monthly or balloon mortgage payments. Restricted lending may also be putting pressure on consumers, keeping them from getting short-term credit that could keep them afloat.

The long-term, nearly record unemployment levels are also a likely contributor to Chapter 7 bankruptcy rates. Consumers cannot qualify for Chapter 13 repayment plans if they are unemployed and have no income. Until the unemployment situation improves, total bankruptcy filings -- and the growing percentage of Chapter 7 liquidations -- is likely to continue to rise.

Related Resource

"Consumer Bankruptcy Filings On Course to Top 1.6 Million in 2010" (24/7 Wall St. blog, Wall Street Journal, June 3, 2010)