$4 Trillion in American Debt: Will it Lead to More Consumer Bankruptcy?


When consumers struggle to repay debt, many turn to consumer bankruptcy as an option for relief. Some of those consumers file for Chapter 7 bankruptcy, which allows them to discharge most if not all debts and to get a fresh start, while others opt for Chapter 13 bankruptcy, which allows them to retain property while adhering to a repayment plan. We know that extensive individual consumer debt can lead to bankruptcy, but does a growing national consumer debt also suggest that more individuals will be filing for bankruptcy in the near future? Or does a rising national debt have different implications?
According to a recent article from CNBC, the overall American debt is expected to reach $4 trillion by the end of 2018. Yet some commentators suggest a growing debt is not necessarily indicative of struggling consumers.
American National Debt is Growing
As the article explains, about five years ago the total consumer debt in the U.S. hit $3 trillion. By the end of September 2018, that number had risen to $3.93 trillion cumulatively, and experts predict that the total will reach $4 trillion by the end of December given that consumer shopping during the holiday season tends to add to the cumulative national debt. During the holiday season alone, “Americans’ credit card bills are set to increase by at least 5 percent,” according to data from LendingTree. To put that number in perspective, Americans will spend approximately $600 million during the holiday season.
Not all of the $4 trillion comes from credit card debt, however. Approximately $2.93 trillion is tied to auto loans and student loan debt. Should we anticipate that, as the national debt grows, more individual consumers will be seeking bankruptcy protection? According to Tendayi Kapfidze, the chief economist at Lending Tree, “it’s a big number but it’s actually not that concerning, because of the income growth we’ve seen since the crisis.”
More Americans can Take on Debt if They Earn More Money
In short, more Americans can afford to take on additional consumer debt if their salaries are rising at similar rates. Kapfidze suggests that this is one of the biggest reasons that a rise in the national consumer debt is not a reason for worry. In addition, Kapfidze cites the following as factors that should give consumers peace of mind:
  • Average income of Americans is growing at a rate faster than the national debt growth rate;
  • Economy is generally more stable than it was 10 years ago;
  • Real estate values have risen since 2008 (with homeowners having collectively about $10 trillion more in equity than 10 years prior);
  • Consumer bank deposits have risen in recent years (by about $2.5 trillion more than the national consumer debt); and
  • Delinquency (or defaulting on debt) rates are low.
However, if interest rates keep rising, especially when it comes to credit card debt, more consumers could end up in a situation in which bankruptcy is the best option for managing a significant amount of unsecured debt—especially credit card debt.
Contact an Oak Park Bankruptcy Attorney
Do you have questions about managing consumer debt or filing for personal bankruptcy? An experienced Oak Park consumer bankruptcy attorney can discuss your options with you. Contact the Emerson Law Firm for more information.
See Related Blog Posts:

Comments

Popular posts from this blog

New Information on Debts That Bankruptcy Cannot Discharge

Younger Parents Need an Estate Plan

Learning About Different Types of Wills