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Declining bankruptcy filings are sign of a disappearing consumer-driven economy

Posted: August 04, 2011

Buffalo, NY – Bankruptcy filings in the Western District of New York fell 30.2 percent for the month of July 2011 compared to the same month in 2010. The American Bankruptcy Institute (ABI) said national bankruptcy filings dropped 18 percent in July 2011 compared to July 2010. ABI uses data from the National Bankruptcy Research Center.

Locally, according to the U.S. Bankruptcy Court, Western District of New York, July filings were down 33.5 percent in the greater Buffalo area and 23.8 percent in the greater Rochester compared to the same month in 2010.

“The consumer bubble has burst. We’re moving toward an economy that depends more on investments and production and less on consumption. Fewer people are getting over-extended on credit, therefore, bankruptcy filings continue to drop,” said Jeffrey Freedman, senior partner, Jeffrey Freedman Attorneys at Law. Throughout the country, filings have dropped for seven straight months compared to 2011.

According to the Federal Reserve Bank of New York, discretionary spending (which includes items such as restaurant meals, entertainment, education and some forms of insurance) is down almost 7 percent per capita. Through previous recessions discretionary spending has never fallen more than 3 percent per capita. In the past, consumers used credit and home-equity lines to carry them through tough financial times and the level of household debt soared.

“This time people don’t seem to expect a quick turnaround in the economy so they are not taking the risks they might have taken in the past. Unfortunately that affects hiring because businesses don’t know when their customers are going to come back,” Freedman said. “It’s a Catch-22. Fewer people are getting over their heads in debt, but fewer people are being hired because people are spending less money.”

Year-to-date, the District of Western New York filings decreased 20.2 percent, with the Buffalo area down 20.5 percent and Rochester down 19.5 percent.

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