This weekend’s AJC Business story entitled “Bankruptcies hit State Hard” confirmed what I have been seeing on a weekly basis in my Atlanta area bankruptcy practice – more people who were solidly “middle class” are finding themselves facing huge debt loads and the prospect of a Chapter 7 or Chapter 13 filing.
The newspaper story quoted a spokesperson from Consumer Credit Counseling who offered the following observation about the “typical” bankruptcy filer in the Northern District of Georgia:
- a homeowner
- Caucasian
- annual income of $43,000
- credit card debt of $39,000
- mortgage and car payment totaling $1,600 per month
- average credit score of 529
- negative net worth of $73,000 (up from negative $57,000 in 2008)
I think that the most telling aspect of these statistics is the amount of credit card debt vs. annual income. If you are trying to service credit card debt that is equal to your annual before tax income, you will never dig out of that hole.
In my practice I often see men and women earning $80,000, $90,000, even $100,000 or more – and often their credit card debt will be double or even triple the household income. With interest rates anywhere between 14% to 28%, it is mathematically impossible to pay off credit cards without some large lump sum payments or remedial action by the credit card companies.
It would be interesting to know what percentage of bankruptcy filers in Atlanta have tapped into their 401(k) or other retirement plans (usually a big pre-bankruptcy mistake, by the way). It would also be interesting to know how long these bankruptcy filers waited between the time they first thought about bankruptcy and the time of actual filing.
If you have filed for bankruptcy or if you are thinking about filing, I would be interested to have you post a comment answering the above questions.