Only a fraction of those in need file for bankruptcy
Instead, concern exists about a growing number of Americans who need bankruptcy protection but cannot get any benefit from it or simply cannot afford to file. As their financial problems worsen, that hurts everyone because it can hinder the economic turnaround.
“It’s shocking that we are back to the 2005 level,” says Katherine Porter, associate professor of law at the University of Iowa. “And the filing rate doesn’t even begin to count the depth of the financial pain.”
Bankruptcy laws changed in 2005 because filings skyrocketed and credit card companies and banks wanted to weed out deadbeat borrowers. The law made it harder — more expensive and more restrictive — for individuals to file Chapter 7 bankruptcy, which erases most debts.
Instead of seeking protection from bankruptcy, a number of debt-laden Americans have gone into a “shadow economy,” or informal bankruptcy, according to some experts.