Bankruptcy Rates Down in First Quarter of 2012


American Bankruptcy Institute Law Review

American Bankruptcy Institute Law Review (Photo credit: Wikipedia)

According to data provided by Epiq Systems, Inc. to the American Bankruptcy Institute (ABI), total noncommercial bankruptcy filings in the United States decreased by 12 percent in the first calendar quarter of 2012 from the same time period in 2011.

These statistics caused Samuel J. Gerdano, the current ABI Executive Director to comment, “With the economic recovery weighed down by the distressed housing market and high unemployment, consumers and business are continuing to cut their debt burdens. We expect that the 2012 bankruptcy totals will be less than last year as companies and families remain vigilant in cutting costs and shoring up their balance sheets.”

Although there are not always common reasons for filing for bankruptcy protection, bankruptcy filings have generally been viewed by economic prognosticators as indicators for the overall health and direction of the US economy.

Currently, no one will adamantly say the economy is in full recovery after the Great Recession of 2007. Technically, the recession officially ended in 2010, but the economy still seems to be sluggish despite indicators like the bankruptcy statistics continuing their monthly decline in filings for the past fourteen or fifteen months in a row.

Certainly, Gerdano might be correct in suggesting the unusual glut of foreclosed houses in the housing market has played a major role in the sluggishness of the economy. No one knows for sure how many homes are actually in the lender’s inventory at the end of 2011, but educated guesses say around 1.4 million homes are waiting to be sold. There have been suggestions that lenders get into the rental business temporarily until the home sales market has improved, but that might only further depress a market that is obviously beginning to show signs of improvement.

The unemployment figures might be the best indicator for the recovery of the economy except the politicians continue to change the official definition of unemployed. The government no longer counts people who have given up on looking for a job as unemployed, and they do not consider underemployment as a factor in the overall health of the economy.

While it is true businesses continue to cut their debt burdens, businesses that survive are the ones who have deep pockets and make good decisions in their debt to income ratios. Lenders have historically and will continue to loan money to businesses that are good risks. That trend has recently begun to surge, indicating at least money is beginning to loosen, a real sign for potential recovery in a sluggish economy.

The only downside to that analysis is the fact many businesses prior to the Great Recession did not survive, and the lending institutions who invested in them lost all of they risked when the businesses went belly up and filed for bankruptcy protection.

Bankruptcy rates are down because money is tight, surviving individuals and businesses are leaner, and most everyone who has needed to file bankruptcy has already done so. Nevertheless, bankruptcy rates dropping may still be a good sign for the economy.



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