Small businesses make up a large share of the whole economy, not only in the US but in all parts of the world. However, these businesses are the most affected by the recent global recession. People who were getting good returns from their businesses are now turning towards courts with bankruptcy petitions. There were 158,141 U.S. bankruptcy petitions filed last month — a 35% increase over February’s figure, according to data compiled by Automated Access to Court Records (AACER). This was a 19% increase over the number in October 2009, the last record-high month.

A large number of individuals are turning towards the complete bankruptcy filing (chapter 7 filings), allowing courts to foreclose all their possessions along with their homes. However, chapter 13 filings are also available, which requires individuals to repay a substantial part of their debts and prevents banks from foreclosing their houses. This behavior clearly indicates that home-owners are just walking away from their mortgages, rather than attempting to cope up with their payments, especially in times where large number of individuals are unemployed and don’t foresee themselves having good earnings in the near future.

The statistics show that personal borrowings in the US have increased 10 times more than they were in 1960, allowing individuals to borrow relatively more than their returning capabilities. That is why people are ending up bankrupt. My question here is: If people are not able to pay back, why lend them money in the first place? Why can’t financial institutions counsel their borrowers on borrowing patterns and best practices, keeping In view the conditions of the economy?

Reference Link: Bankruptcies High Tide « MFG Mortgage Rates – Blog