Recent News on Personal Bankruptcies and Auto Loans

Is there a link between the rate of personal bankruptcies in the U.S. and the number of auto loans sought by American consumers? According to a recent article in Forbes, “the closely watched rate of personal bankruptcies is low and trending lower,” and the total rate of bankruptcies in 2016 might be at a record low since 2005.
What is the connection between bankruptcy filings and auto loans? In short, bankruptcy proceedings tend to impact auto lenders in ways that they do not like. As such, a low number of consumer bankruptcy filings could be good news for auto lenders, but it could also be good news for consumers. What else should you know?
Record Low Number of Bankruptcy Filings Across the Country in 2016
As the article reported, as of the end of December of 2016, the executive director of the American Bankruptcy Institute (ABI), Samuel Gerdano, emphasized that it was likely that total bankruptcies in 2016 would come in at under 800,000. That total is the second-lowest since the institution of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. As the article clarifies, because the BAPCPA aimed to reduce the number of consumer bankruptcies, once the statute was signed into law, it “caused a huge spike in bankruptcy filings, as people rushed to file for bankruptcy before it took effect.”
It is important to note that the BAPCPA took effect years before the foreclosure crisis and the economic downturn. As such, the higher number of bankruptcy filings in 2005 is not directly related to the market crash. At the same time, the fact that we are seeing one of the lowest levels of consumer bankruptcy filings since the early 2000s appears to be good news for the economy generally, and it suggests that many debtors may be managing their payments in a manner that is not debilitating to their daily lives.
Impact of Low Bankruptcy Numbers on Auto Sales and Auto Lenders
You still might be wondering: what does this have to do with the auto loan industry? In the most immediate terms, if consumers are better managing their finances, they may be more likely to apply for and be eligible to receive an auto loan, and they may be making auto loan payments in a timely manner. When there are more consumers spending (and not spending in ways that can be harmful in the long run), this tends to be a good thing.
Yet there is also an upside for auto lenders. When consumers file for Chapter 7 bankruptcy, and sometimes even in Chapter 13 bankruptcy filings, auto lenders end up losing money. The article clarifies: “From the auto lender point of view, bankruptcy may prevent a creditor from repossessing a motor vehicle. A bankruptcy court may also reduce the total amount a creditor can collect for a vehicle in default to the vehicle’s present value, even if the loan is for a greater amount.” While consumer bankruptcies may be bad news for auto lenders (and thus a low rate of personal bankruptcies may be good news), that low rate likely is good for consumers, as well.
We should note, however, that the rate of commercial bankruptcy filings is not on the same downward trend as personal bankruptcy filings. Commercial filings have been on the rise in recent years, and all signals indicate that they will continue to increase.
Discuss Your Case with an Oak Park Bankruptcy Attorney
If you have questions about filing for personal bankruptcy, an experienced Oak Park bankruptcy lawyer can assist you. Contact the Emerson Law Firm today for more information.
See Related Blog Posts:
Can Non-Citizens in the U.S. File for Consumer Bankruptcy?

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