Bankruptcies Skyrocket In September

Personal bankruptcies posted a big increase in September, not a surprise as unemployment races toward 10%.

The American Bankruptcy Institute reports that the September 2009 consumer filings total reached 124,790, a 41% increase from the 88,663 consumer filings in September 2008. The number is also up 4% from August.

Consumer bankruptcies totaled 1,046,449 filings through the first nine months of 2009  which is the first time since the figure has hit more than one million since the 2005 bankruptcy overhaul.

The news is bad for both retailers and credit card companies, particularly as the holiday shopping period approaches. Last year, the drop in consumer spending in the fourth quarter a number of retailers closed led by national electronics chain Circuit City. Weak sales between Thanksgiving and New Years may cause another wave in layoffs in the retail sector.

The bankruptcy trend is also bad for credit card issuers, particularly American Express (AXP) and the large money center banks. Analysts are expecting the earnings at these firms to improve as the value of their toxic assets begins to stabilize, but that stability is being threatened by credit card defaults and delinquencies in commercial real estate loans.

If the trend continues, bankruptcies will hit 1.3 million for the year, yet another boat anchor dragging down the economy.

Douglas A. McIntyre