Dark Cloud of Student Loan/Personal Debt Hangs Over Bankruptcy Filings

Total bankruptcy filings in the United States Bankruptcy Court: Western District of New York declined by 4.4 percent August 1, 2018 to August 31, 2018, compared with the same period in 2017. Filings in Buffalo declined 8.2 percent, however, Rochester saw a 3.3 percent increase during August.

Nationally, there was an 11 percent increase in filings during August 2018, compared to July, 2018, according to data provided by Epiq Systems, Inc.

Changes in the bankruptcy laws in 2005 and the tightening of lending laws after the mortgage crisis of 2007 to 2010 have resulted in a decline of filings over the past seven years, however, current changes in lending practices may be beginning to drive filings upward, said Kevin J. Bambury, attorney, Jeffrey Freedman Attorneys, PLLC.

“First, student loan debt is at record highs, with borrowers owing $23 billion, and more than $9 billion of those debts currently in default, according to a recent article in the New York Times,” Bambury said. “And although student loan debt cannot be discharged in bankruptcy, the burden of the payments on these loans is more than most debtors can afford to pay without impact on their ability to pay their other bills.”

Student loan debt is leading the trend of month-to-month increases in total consumer credit; and additionally, lenders are once again pushing personal loans to consumers with poor credit histories.  According to the Wall Street Journal, lenders sent out a record 1.26 billion solicitations for unsecured personal loans, including offers for as much as $100,000. In July of this year, consumer credit (which includes secured loans such as mortgages and auto; and unsecured debt such as student loans, credit cards and personal loans) reached $26 billion.  The number was at its highest since July 2011 and occurred after an $18.8 billion gain in June, according to the Federal Reserve Bank.

“When multiple factors such as these begin to converge on consumers at the same time, eventually the pressures become too much and there’s a surge of filings in the bankruptcy courts,” Bambury said.

“Even through we’re still seeing decreases in Buffalo, in Rochester and nationwide, we are starting to see the results of consumers taking on more debt. Unless something is done to control the growth in student and personal loans, there’s going to be a problem.”

Jeffrey Freedman Attorneys, PLLC, has been assisting clients in Buffalo and Rochester with bankruptcy and consumer issues, for more than 38 years.