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Less spending combined with less use of credit means lower bankruptcy filings

Posted: November 04, 2011

Buffalo, NY – Bankruptcy filings in the Western District of New York, which includes the greater Buffalo and greater Rochester areas, fell by 26.4 percent in October 2011 compared with October 2010, according to the U.S. Bankruptcy Court. This is the logical outcome of what is going on with consumer spending, said Jeffrey Freedman, senior partner, Jeffrey Freedman Attorneys at Law.

“Consumers are tightening their belts and they are not spending on credit. When people do make a big purchase, they pay cash as much as possible,” Freedman said.

“One reason for this is the fact people don’t have equity in their homes so they can’t depend on home equity lines of credit, plus credit card issuers have reduced the amount of credit available.”

Fewer people buying and fewer people using credit means fewer people are getting into trouble financially, he said. This is a turnaround from the decade prior to the recession (1997 to 2007), when household debt increased from 66 percent of economic output to 98 percent, according to the Federal Reserve Bank.

Bankruptcy filings in greater Buffalo decreased 23.1 percent in October, and in the Rochester area, they fell 32.4 percent. Nationwide, there was a 19.6 percent decrease in filings from filings recorded in October 2010, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC).

For the year to date, the Western District of New York saw a decrease of 20.1 percent, with the Buffalo area down 19 percent and the Rochester area down 22.2 percent.

TransUnion, L.L.C., a credit reporting agency, said between 2009 and the end of the second quarter of 2011, Americans closed 103 million credit card accounts and cash purchases exceeded purchases on credit by approximately $116 billion. Unfortunately another side effect of slow spending is a slow economic recovery. The current growth rate of the economy is 2.5 percent compared with 4.5 percent during previous recoveries.

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