Bankruptcy Filings Hit Record High

January 13, 2006 – Posted at 5:19 p.m. CST

JONESBORO, AR -- An overhaul of the U.S. bankruptcy code is making it harder to erase debts...but it's not stopping filing rates from reaching a record level last year.

One in every 53 households filed for bankruptcy last year, that's more than 2 million people hitting a record mark.

"A bankruptcy is a tool to help you get your feet back on the ground, and help to get things going back in the right direction," said attorney Michael Crawley, Jr. of Crawley & DeLoache, "Of course it is a blemish on your credit, don't get me wrong, but being sued and having garnishments and losing your house because you can't make your monthly payment...those things are really bad on your credit as well."

New bankruptcy codes took effect on October 17th of last year...and filings were at a record high in September.

"A lot of folks are seeing that their minimum payments on their cards are doubling in their next few months. That on top of higher gas, heating costs and food is just getting tough," said Crawley.

There are four different types of bankruptcy. Chapter 7 is also known as a straight bankruptcy or complete discharge. It may require a debtor to sell property to pay creditors. Chapter 11 is used by businesses, Chapter 12 is reserved for family farmers and Chapter 13 is used for debt reorganization.

"Don't be scared if you find yourself in a situation where if you need help to ask for it. Because bankruptcy may not be the right remedy," said Crawley , "There are other ways to clear things up, but if you need it, find out how it works for you."

If you do file for bankruptcy you will still have to pay child support, alimony, student loans, criminal fines and of course, taxes.

The law does prohibit governmental units and private employers from discriminating against you because you filed a bankruptcy. But it will appear on your credit report for seven years from a Chapter 7 discharge or a completion of a Chapter 13 plan.