After a steady increase over the past several years, the number of bankruptcy filings in the U.S. is finally on the decline, although this may not necessarily indicate that the economy is improving.
According to a report by Epiq Systems, which tracks bankruptcy filings, the number of filings in June dropped 6.2% from May, in spite of the fact that there was one additional day to file in June. At an average of 5,483 per day, daily filings are down almost 10% from June of last year.
Though the total number of bankruptcy filings throughout the U.S. was down, the actual numbers varied from state to state. In Delaware, for example, June filings were up 33% compared with May. They were up 13% in Georgia but dropped 30% in Wyoming, 21% in South Dakota and 18% in West Virginia. In New York and New Jersey, filings were down 5%.
At first glance, the decline in bankruptcy filings may seem to indicate that the economy is improving. While it is true that unemployment and foreclosures play an important role in bankruptcy filings, the amount of outstanding consumer debt is more closely tied with the filing rate in the long run. Access to credit can also influence the bankruptcy rate on a short term basis. When lenders tighten their standards and borrowers have limited access to credit cards and other loans during difficult times, they are more likely to turn to bankruptcy. Filings tend to fall when new loans are being made.
Robert M. Lawless, a professor at the University of Illinois College of Law, said he expects that filings will decline 5-10% this year – largely because consumers have slightly more access to credit than they had in previous years. He also said that consumers have taken on less debt in the past three years. With less debt to discharge and fewer incentives to file bankruptcy in the first place, he expects that filings will level off at approximately 1.46 million.
There were approximately 1.56 million bankruptcy filings in 2010 and nearly 1.45 million in 2009. In 2005, bankruptcy filings surpassed two million, as debtors rushed to file before a new law went into effect that made it more difficult and expensive to file.
As of the end of June of this year, there were 731,237 bankruptcy filings nationwide. 70% of these were Chapter 7 filings, which enable debtors to secure a fresh start by forgiving their debt. This is typically the fastest and most straightforward form of bankruptcy, but debtors must first pass a means test to qualify, which determines whether they are able to repay their debts under a Chapter 13 repayment plan.
Approximately 27% of filings through June were Chapter 13 filings, which involve the establishment of repayment plans that require debtors to use their disposable income to pay creditors over a period of 3 or 5 years. Debtors who cannot pass the means test or who wish to save their homes from foreclosure may choose to file Chapter 13.
Regardless of your financial situation, it is important to seek accurate information and knowledgeable counsel when considering whether to file bankruptcy. With more than 50 years of collective legal experience, the team at Jacoby & Jacoby can offer debtors the level of legal representation they need in filing Chapter 7 or Chapter 13 or seeking an alternative form of debt relief. Located in Long Island, the firm represents debtors throughout the surrounding areas.
Contact a Long Island bankruptcy attorney at the firm today for a confidential review of your case.