The American economy is still struggling to return to pre-2008 levels. The housing market is still cold, and consumers are still hesitant to make big purchases. Many of those in financial trouble are find themselves faced with the decision to protect their assets through the process of bankruptcy.

The problems aren’t reserved for regular households anymore, entire cities are being put at risk. Let’s take a closer look at what’s happening in the consumer market in one of the major metropolitan areas in California–San Diego.

Throughout California Chapter 7 and Chapter 13 bankruptcy filings have risen dramatically. Both forms are used by consumers and are an indicator of the overall health of the local economy.

Chapter 7 bankruptcy generally allows debtors to discharge all of their unsecured debts (credit card debts and medical bills) within a 4 month period. Chapter 13 offers a debtor the chance to restructure their debts and catch up on payments and back taxes over a 3-5 year repayment period.

Currently the filing trend is still increasing reaching new all-time highs every quarter period stretching back to 2006.

Take for example a major city like San Diego. This graph stacks Chapter 7 & 13 claims and compared each quarter since 2006. (Chapter 13 filings are in blue, Chapter 7 in red.)

Bankruptcy laws changed with the Bush administration in 2005 that accounts for some of the increase at the beginning of 2006. We can also see that the credit shock in 2008 was not the contributing factor that started the increase in bankruptcy filings. In fact, it appears that factors in the economy years before started the upwards trend.

The increase in filings started well before the credit-crunch experienced worldwide in October, 2008 and have climbed ever since. Using only bankruptcy data recovery doesn’t appear to be waiting around the corner. Current recessionary trends certainly don’t help any recovery.

For those facing the decision to file for bankruptcy it’s crucial to seek out professional legal guidance to ensure every one of your qualified assets are protected. Technically one can file without the aid of legal counsel, however, it is not recommended.

Bankruptcy fillings in California also have price ceilings which means attorneys have a maximum they can charge for certain bankruptcy services. The cost is miniscule compared to the risk of losing a major asset unnecessarily.

Regarding recovery, we have observed that Chapter 7 and 13 filings are consistently hitting new all-time highs every quarter.

Despite repeated increases there is in fact good news. Although it appears more and more people are still filing for bankruptcy, the actual rate of increase from quarter to quarter is declining.

For about a year now the rate of filing increases has slowed down. It is possible that the economy in California, and specifically in San Diego, may be turning around by the end of 2010. That of course assumes we only use bankruptcy filings as the indicator of economic health.

In the least we should be able to see a stop to the increase in filings every quarter by the end of 2010 (quarter four). Only time will tell, as that data is not released until Spring 2011.