Bankruptcy Filings Down; Credit Card Deficiencies Down

There is some good news for consumers after the first quarter bankruptcy numbers are in:  the number of personal bankruptcy filings was down.  Again.  This was a continuation of the 2011 and 2012 trend; and a huge turnaround from the prior years when the number of personal bankruptcies, in Massachusetts and throughout the country, skyrocketed.  The first quarter of 2013 filings were down 13% from last year’s first quarter.  Furthermore, credit card delinquencies and chargoffs are below last years, indicating that consumers are in a much better position to pay their bills.  For example, delinquencies are down 26%, which seems significant.

Why?  Interest rates remain low, unemployment is improving, and creditors are easing up on their restrictions on lending are among the answers, many economists think.

What About Credit Cards and Bankruptcy? 

Revolving credit, or credit card loans, has been steady, recent statistics show.  This is good news from a bankruptcy lawyer’s perspective as, with bankruptcy filing rates trending lower, and revolving credit remaining constant, there is no sense from this statistic that there is a looming bankruptcy wave forthcoming.

Of course, many bankruptcies are not filed because of credit card debt alone.  In the recent mortgage lending crisis, it was home foreclosures that were a major factor driving personal bankruptcy filings throughout the US and in fact many other countries as well.  In Massachusetts, at the Law Office of Neil Burns, we filed dozens of personal bankruptcy petitions on behalf of clients which were not primarily credit card based following that crisis; they were mortgage based.

Our own antidotal evidence in 2013, however, is that new bankruptcy clients are facing debt problems because of layoffs and tax debt, both possibly resulting from the fall out of the recent recession.  Neither mortgages, nor overuse of credit cards, are not the driving force in the cases we see.  Nevertheless, filings are down in Massachusetts.

What Economic Concerns Are There From A Bankruptcy Lawyer’s Perspective?

Is there any black cloud?  Perhaps.  New loans for motor vehicles are up.  This is generally considered a positive sign for the economy – folks have funds to buy cars and the confidence that they will be able to pay on these loans.  However, student loans are also up significantly.  Overall “consumer credit” is up at the rate of 8%, which is driven largely by auto and student loans.  Student loans pose a long term and significant economic concern.  If the education is remunerative and the loans paid off, it is positive.  If folks can’t pay off their student loans, it becomes a drag on them, and the economy.  We have written about this many times.

Massachusetts Senator Elizabeth Warren sees this as looming problem.  Many economists do as well.  And, as we note on our website, student loans are not dischargeable in bankruptcy.  So folks with student loans as the problem in their personal financial situation will not get the “fresh start” that the bankruptcy laws envision.

If you need advice on consumer debt, call Attorney Neil Burns at 617-227-7423.  He has 28 years of experience.

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