According to a new Fitch Ratings reports, personal bankruptcy filings, including Chapter 7 and Chapter 13 bankruptcies, have had four straight years of declines. Personal bankruptcy filings fell an estimated 12% in 2013 (from 145,759, to 1,011,732 from 1,157,491 in 2012) and are expected to drop another 8-10% in 2014. Experts expect the decrease to level off after 2014.
Experts argue the reasons bankruptcy filings have declined so much over the last several years is because many banks have tightened underwriting standards and are hesitant to offer large credit lines to consumers. Experts also note this could change in the upcoming years.
Additionally, the economy has improved slightly, and employment opportunities have improved for many workers. Couple this with tighter credit options and some consumers have tightened their belts, paid off their debts and are not having to file as many personal bankruptcy filings.
Bankruptcy filings- why do people do it?
While bankruptcy filings are down, Legal technology provider Epiq Systems estimates that 1.21 to 1.25 million Americans will file for bankruptcy this year, down from 1.38 million last year. Hundreds of thousands of people are forced to file bankruptcy, not because they overspent on luxury items with a credit card, but because they had very specific financial challenges. The most common reason for bankruptcy filings include lost employment, divorce, or a serious illness.
For instance, during 2012 there was an estimated 5.2 million Americans who had been unemployed for six months or longer (according to the Bureau of Labor Statistics) and another 20% had high medical bills they could not pay. These two financial factors have forced many well-intentioned conscientious Americans into bankruptcy.
So why do people file bankruptcy? Many people realize their debt to income ratio is unsustainable, and they believe they can get a fresh financial start. Unfortunately, not all types of debts are discharged through bankruptcy filings and depending on your debts, bankruptcy may not be the right solution for you. For instance, if you have domestic support obligations such as alimony or child support, if you have debts for a criminal action or if you have student debts (exceptions exist), bankruptcy may not be a good choice.
Who else may not benefit from bankruptcy? Those consumers who decide to go on a major shopping spree right before they file bankruptcy. Consider, if you buy things prior to bankruptcy this can be considered fraud and fraudulent debts are not discharged.
Will we continue to see bankruptcies decline?
Changes in bankruptcy laws in 2005, which made it difficult to discharge consumer debts through Chapter 7 bankruptcy, were the first steps to reduce personal bankruptcy filings. Then we saw the housing crisis and the tightening of the credit market. Now, as a result of economic difficulties, many Americans have learned how to budget their money and reduce their debt load. Here’s to hoping that the lessons we learned in the Great Recession will stay with us, and we continue to make good financial decisions that will keep us out of the bankruptcy court.
Latest posts by Beth (see all)
- Chapter 7 bankruptcy how to avoid filing a second time? - April 24, 2017
- Chapter 7 bankruptcy how do they determine if I can file? - April 19, 2017
- Receiving Supplemental Security Income can I file for bankruptcy? - April 12, 2017