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Complex reasons lie behind decline in bankruptcies

Posted: December 02, 2011

Buffalo, NY -- As bankruptcy filings continue to decline, experts search for the reasons behind the trend. Buffalo saw another decline of 22.1 percent for November 2011 compared to November 2010; Rochester was down 8.4 percent; and the Western District of New York declined 17.5 percent during the same period according to the U.S. Bankruptcy Court, Western District of New York.

“Long-time unemployment is still around 9 percent and poverty is increasing -- with nearly 15 percent of Americans using food stamps,” said Jeffrey Freedman, senior partner, Jeffrey Freedman Attorneys at Law. “Additionally, the use of credit is increasing -- that’s a combination that would typically result in more bankruptcy filings, so we have to wonder what is happening.”

According to CardHub.com, consumers accumulated $18.4 billion more in credit card debt during the second quarter of 2011 than in the same period during 2010. That was a 66 percent increase over the second quarter of 2010, and a 368 percent increase from two years prior. Yet, bankruptcies are down and people seeking help from credit counselors went down 20 percent in 2010 from 2009, with those numbers continuing to decline.

“We have reached a point where consumers simply cannot afford the options that could help them get out from under their burden of debt. With stricter bankruptcy and debt repayment program laws in place credit counseling, repayment plans and bankruptcy have become too expensive, given people’s limited incomes,” Freedman said.

Other contributing factors are that a significant number of homeowners are no longer threatened by foreclosure because backlash from the robo-signing and fraudulent documentation scandal has put foreclosures at a standstill. Plus, many consumers have reached the point where they don’t have any income or assets, so there is no point in them filing for bankruptcy, according to Robert Lawless, law professor at the University of Illinois.

Although options are limited, some consumers who have been harassed by debt collectors are filing Fair Debt Collection Practices lawsuits and using the settlement funds they obtain to pay down their debt. Others find they are better off having their wages garnished than filing either Chapter 7 or 13. With a few exceptions, the maximum that may be taken by credit card companies or other lenders is 10 percent gross pay, so if a debtor grosses $600 per week and has five loans outstanding, the maximum that can be taken would be $60 per week.

“The low filings we are experiencing today are not a sign of a healthy or recovering economy,” Freedman said. “They are a sign of an economy that is so sick, it could almost be considered to be on life support. The day we see more people getting back to work, that’s when we’ll see bankruptcy filings, debt repayment plans and credit counseling begin to increase as people seek relief from their debts. Many will not be able to get the fresh start they deserve until that day.”

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