The only kind of whopper a person with this kind of ‘BK’ is going to get is a whopper of a headache. In this, the legal sense for the abbreviation, we’re talking about BANKRUPTCY. And for struggling homeowners it often represents what they think is the last stand they can take before losing their home to foreclosure.

And the scary part is, bankruptcies seem to be back in vogue.

Back in the early 1990s, in addition to double-digit interest rates, high unemployment and a flood of foreclosures on the market, another telltale sign that we were in a recession was an abundance of personal bankruptcies — especially Chapter 7 which wiped out all of a debtor’s unsecured debt.

The federal government clamped down on that “loophole” with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. According to published reports, more than 2 million Chapter 7 bankruptcies were filed that year (an all-time high) right before the new bankruptcy law went into effect.

Well, the American Bankruptcy Institute just released its numbers for calendar year 2007 and consumer bankruptcies were up 37.6 percent over 2006 to 822,590 filings (60.9 percent of those being Chapter 7 filings and 39.1 percent being Chapter 13 filings to come up with a supervised repayment plan).

“The latest figures ratify trends that began last year, depicting households under growing stress from heavy consumer debts, now in homes they can’t afford and can’t sell,” said ABI Executive Director Samuel J. Gerdano, who expects consumer bankruptcies for 2008 to top 1 million, according to a Reuters report.

As Bloomberg.com recently reported, the likelihood of Gerdano’s prediction coming to fruition is more than a possibility given that more than 90,000 bankruptcy filings were reported for March 2008 alone, a 30 percent increase from a year ago.

Of ABI’s top 10 states with the highest per capita filing rate for 2007, four of them — Georgia, Michigan, Ohio and Nevada — were also some of RealtyTrac’s top 10 foreclosure states for much of the year.

In the meantime, executive search firm A.E. Feldman reported that law firms have already started gearing up their staffs to handle the anticipated increase in bankruptcy workload.

What all this does is add more fuel to the recessionary fire just like back in the 1990s. What consumers/distressed homeowners need to understand is that bankruptcy does not STOP a foreclosure proceeding, but merely delays it. Once the foreclosing lender gets clearance from the bankruptcy judge on the case by dismissing the stay on the foreclosure, the lender can proceed with the process.
 
In the end, more bankruptcy filings may translate into more short sales down the road, or possibly more people simply walking away from their homes — with or without a deed  in lieu of foreclosure — in essence handing the keys back over to the lender.

Whether the net result is a short sale, a walk away or going through the whole foreclosure process, it seems like the foreclosure fires are likely to be fanned still higher, with more properties being available for home buyers and investors looking to find a bargain in many parts of the country for the foreseeable future.