Real Reasons to Whine
Maybe we’re whiners for a reason. Bankruptcy filings climbed again in August, providing more proof that people are feeling the strains of a softening economy, creditslips reports.
The August figures show bankruptcy filings have reached a post-2005 high of 4,476 filings per day, notes credit expert Robert Lawless, a University of Illinois law professor. That milestone is significant because, in 2005, lawmakers approved a new bankruptcy law aimed at making it harder and more time-consuming to file bankruptcy, and more difficult to discharge debts.
But instead of slowing filings, bankruptcies are “staggeringly high,” Lawless said. If filings keep growing at this pace, Lawless expects a return to the era of more than 1 million bankruptcy filings annually. High numbers of bankruptcies prompted the 2005 law in the first place.
People often ask me why I think bankruptcy filings are rising. My answer is that it is both simple and complex. The simple answer is that hard economic times obviously contribute to rising filing rates. Tightening consumer credit markets also lead to short-term increases in bankruptcy filings as consumers find it difficult to borrow more to stave off the day of reckoning. That is the simple part. The more complex part of the answer is that we know people do not file bankruptcy immediately upon the onset of financial distress. Typically, consumers struggle for a long time–often two or more years–before filing bankruptcy. The job loss today or the harassing calls from creditors may precipitate a bankruptcy filing, but the seeds of that bankruptcy filing were sown long before it shows up as a statistic in the bankruptcy filings.
During the bankruptcy reform fight, consumer advocates warned that the reforms – supported largely by the lending industry – would do little to curb bankruptcies, and would mainly benefit creditors. As filings continue to increase, it’s evidence that they had it right.