Why are Consumer Bankruptcy Filings on the Decline?

For many Oak Park residents, learning that a friend or family member has made the decision to file for consumer bankruptcy is interpreted as a sign of economic struggle. When debt becomes overwhelming, consumers may file for Chapter 7 bankruptcy if they can pass the “means test,” or for Chapter 13 bankruptcy if they are able to stick to a repayment plan that still permits a discharge of debts once the multi-year repayment plan period ends. In other words, hearing that people are filing for bankruptcy typically is construed as a signal that the bankruptcy filer is having financial difficulties. Accordingly, learning that fewer Americans are filing for Chapter 7 or Chapter 13 bankruptcy often is construed as a sign of financial improvement.

However, according to a recent article in MarketWatch, a decline in bankruptcy filings might not always be a good thing.


Lowest Bankruptcy Filing Rates in a Decade


According to the article, U.S. Supreme Court Chief Justice John Roberts recently issued a report that indicates “corporate and consumer bankruptcy filing rates are at their lowest point in about a decade.” Approximately 10 years ago, at the recent height of consumer bankruptcy filings in the Great Recession, there were 1.6 million bankruptcy petitions. Most of those filings were personal bankruptcy cases, accounting for 1.53 million or nearly 96% of the filings.

Currently, consumer bankruptcy filings are down significantly. While consumer bankruptcy cases still accounted for approximately 97% of the filings, there were only about 770,000 bankruptcy petitions filed. According to Chief Justice Roberts, “bankruptcy petitions haven’t been so low since 2007.” However, the decline in personal bankruptcy filings might not necessarily be a sign of improved financial health. The article intimates that a lack of consumer bankruptcy filings actually could signal bigger financial problems in individual households.


Bankruptcy Costs and Lack of Assets Could be Reasons for Fewer Filings


Why would fewer bankruptcy filings signal financial distress among consumers? While the premise might seem odd, the article explains that “people may not be filing for bankruptcy because it’s too expensive to do so, and they might have too few assets to protect.” In other words, it is possible that more people are avoiding filing for bankruptcy because they can not afford the filing fees, and for others, they may have few to no assets, making bankruptcy protection seem moot.


As the article explains, people tend to file for bankruptcy when they do have assets to protect, and when they see a financial future for themselves.

At the same time, other consumer protection advocates offer alternative explanations that do in fact signal stronger financial health among consumers. For example, increased healthcare coverage could mean that fewer people have extensive medical bills necessitating bankruptcy, and more mortgage servicers are working out alternatives for homeowners who are behind on their home loans.


Contact an Oak Park Bankruptcy Lawyer

Do you have questions about filing for bankruptcy or inquiries about how bankruptcy could benefit you? An experienced Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.





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