A recent article in the New York Times notes that bankruptcy filings have been seriously affected by the tight credit market we’ve seen over the last few years. Specifically, the article cites numbers that suggest that the current rate of personal bankruptcy filings, while high, could have been much higher if creditors hadn’t scaled back their credit offerings in recent years.
Fewer Opportunities to Accrue Debt
According to the article, this is what’s been happening in the U.S. world of credit, debt and bankruptcy protection:
- Credit dries up: When the financial crisis hit in 2007 and 2008, many lenders (including credit card issuers, mortgage lenders and others) seriously scaled back their credit offerings. They made it harder to qualify for credit and harder to take out large loans.
- People file for bankruptcy: Initially, restricted access to credit meant that many struggling consumers who might have depended on their credit cards for a few more months instead filed for bankruptcy protection (because no credit card options were available).
- People rack up less debt: In the longer term, one positive benefit of strict credit standards is that borrowers have fewer opportunities to take on debt and generally have the opportunity to take on less debt than they do when credit is cheap.
- Fewer people file for bankruptcy: Now, what we’re seeing, sources report, is that fewer people are filing for bankruptcy than might be expected given the economic state of the country. Because people didn’t have access to credit, they weren’t able to accumulate the kind of debt that might have led them to seek bankruptcy protection.
Bankruptcy Estimates for 2010 and Beyond
So what might current numbers mean for bankruptcy filings in the coming months and years?
- This year: By the end of 2010, many analysts estimate, 1.6 million Americans will file for bankruptcy protection. This is about the number that filed in 2004 (1.59 million), the year before the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and essentially made filing for bankruptcy more expensive and slightly more difficult.
- The next few years: Insiders are apparently predicting similar numbers in the next few years, assuming the economy recovers and the unemployment rate eventually drops.
Perhaps the most interesting thing about these numbers is that they suggest that BAPCPA had little to no real impact on the number of people who seek bankruptcy protection. That’s because, according to some sources, the law did little but raise the cost of filing for bankruptcy – it didn’t improve financial conditions, and it didn’t offer any realistic alternatives.
If you’re struggling financially and are considering bankruptcy protection, take action now: contact a bankruptcy lawyer practicing in your area and find out whether bankruptcy might offer the protection you need.
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- Personal Bankruptcy Filings Reach Five-Year High
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- Can You Afford to File for Bankruptcy?
