Are Consumer Bankruptcy Filings Problematically Low?

Consumer bankruptcy is an option for many Americans who are struggling with debt and need help moving forward with their financial lives. Regardless of the state of the economy, a certain number of consumers will experience difficulty managing debt and will seek advice from a bankruptcy lawyer about filing for Chapter 7 or Chapter 13 bankruptcy. In some situations, when a consumer is not eligible for Chapter 13 bankruptcy due to high amounts of secured or unsecured debt, that consumer might end up filing for Chapter 11 bankruptcy. Generally speaking, most of us assume that lower rates of consumer bankruptcy mean that fewer Americans are struggling with debt, with higher rates of bankruptcy suggest that more consumers are having difficulty making ends meet.

Yet according to a recent article in Bloomberg Law, particularly low rates of personal bankruptcy might also be a sign of problems. Indeed, according to that article, consumer bankruptcy rates may be “too low” for comfort.

Bankruptcy Rates are Lower Than Expected

With the COVID-19 pandemic and the spiking rates of unemployment in Illinois and across the country, many economists have predicted that personal bankruptcy rates are going to end up spiking as a result. To be clear, the thinking is that, as stimulus money dies out and all of those unemployed Americans are unable to find new jobs—or at least jobs that allow them to earn what they earned pre-pandemic—many will turn to Chapter 7 or Chapter 13 bankruptcy.

Yet according to the recent Bloomberg Law article, personal bankruptcy rates currently seem too low. Even as Chapter 11 bankruptcy rates for businesses have risen significantly, rates of Chapter 7 and Chapter 13 bankruptcy for individual consumers have remained unexpectedly below where those rates were at the same time in 2019 and 2018—moments in which the economy seemed to be faring much better than it is currently. Thus, there is a sense that something may not be quite right. But can bankruptcy rates ever be too low? When can surprisingly low rates of consumer bankruptcy indicate a bigger problem?

Chapter 13 Bankruptcy Rates are Way Down

One of the main indicators that the low bankruptcy rates are problematic is that Chapter 13 bankruptcy rates in particular are way down. Indeed, they have dropped by 50% from this same point last year. Why is this an issue? Chapter 13 bankruptcy is only available to consumers who have a regular income—it is known as a “wage earner’s bankruptcy.” In order to qualify, the debtor must be able to show that she or he can make regular payments on a debt repayment plan over the course of three to five years. If far fewer Americans are filing for Chapter 13 bankruptcy, that fact could be an indication that Americans do not have the means to qualify for a reorganization bankruptcy.

In addition, the overall decline in bankruptcy rates could be a sign that Americans cannot even afford the costs of a bankruptcy filing.

Seek Advice from a Consumer Bankruptcy Lawyer in Oak Park, IL

If you have any questions about filing for consumer bankruptcy, or if you need assistance filing for Chapter 7 or Chapter 13 bankruptcy, one of our experienced Oak Park consumer bankruptcy lawyers can assist you today. Contact the Emerson Law Firm to get started on your case with a dedicated consumer protection advocate.


See Related Blog Posts:
Top Reasons to Hire a Lawyer for Your Bankruptcy Case
How Will I Know if I Should File for Bankruptcy?

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