Hundreds of thousands of Americans dealing with damaged credit scores

10.05.09
By Nicholas Storie

For hundreds of thousands of Americans, 2009 was a year when their credit score suffered serious and lasting damage.

That's because more than 1 million bankruptcies were filed in the first nine months of this year, according to the American Bankruptcy Institute, which reported a total of 1,046,499 such filings during that time period this year.

That was said to be the highest level since 2005, when Congress passed a bankruptcy reform law that made it harder for many people to file. Bankruptcy stays on one's credit score for 10 years.

Bankruptcy is likely to become an even more serious problem in the future, with former Federal Reserve chairman Alan Greenspan making news over the weekend with his appearance on ABC's This Week, where he predicted that unemployment rate would end up above 10 percent.

Greenspan also indicated that an eventual upswing in jobs is likely, although the overall conditions currently point to what will be a slow economic recovery.

A 10 percent unemployment rate has long been predicted by various economists as the recession drags on, although last week's figures showed only a fractional increase, from 9.7 to 9.8 percent for the month of September.

An increased unemployment rate is also bad news for credit card companies because it means that over time they may find themselves forced to write off more accounts at a time when pending government reforms will already take a bite out of the ways they currently boost their profits, such as through punitive interest rates and late fees.

Elsewhere, a new Associated Press analysis of 3,100 U.S. counties provides further reason to expect a slow and difficult recovery. According to that report, 39 percent of the nation's counties show signs of being economically distressed, down from 41 percent in both June and July.

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Bankruptcy levels were up through much of this year.