• 08
  • July
    2011

In our previous post, we mentioned new data released by the American Bankruptcy Institute and the National Bankruptcy Research Center indicating that there have been 7.9 percent fewer bankruptcy filings this year compared to 2010. The latest data, collected in June, show that daily filings are almost 10 percent lower compared to last June.

As a recent New York Times article pointed out, however, the new data does not necessarily indicate that the economy is improving. While foreclosure and unemployment rates do factor into the recent bankruptcy data, some experts say that the recent numbers are more indicative of the amount of outstanding consumer debt and the availability of credit.

According to bankruptcy specialist Robert M. Lawless, a professor at the University of Illinois College of Law, while there are various factors that affect bankruptcy rates, the state of consumer credit seems to be the "most significant factor." Lawless says that consumer ability to get credit influences bankruptcy rates in the short term. The more available credit is to consumers, the fewer bankruptcy filings there tend to be, at least in the near future. Credit, at least temporarily, can allow indebted consumers to get through tough periods and avoid filing for bankruptcy.

That may shed a bit of light on the current decline in bankruptcy filings. At the present time, many consumers have more access to credit than they have in recent years and, because of the increase in penny-pinching, have accumulated less debt. The situation translates into falling numbers of bankruptcy filings in the near future.

How have consumers been filing lately? Around 70 percent have been Chapter 7 filings, which give indebted consumers the chance to liquidate their debt and get a fresh start. That is in contrast to Chapter 13 filings, which allow consumers to reorganize their debt and go on a repayment plan. Sources said that the ration between Chapter 7 and Chapter 13 filings is about the same as last year.

Source: New York Times, "Fewer Americans File for Bankruptcy," Tara Sigel Bernard, 6 July 2011.