Bankruptcy filings are at a 10-year Low - Here Are the Reasons Why
Bankruptcy is Declining
According to John Roberts, Supreme Court Chief Justice, both corporate bankruptcy and consumer filings are at their lowest number in ten years. Fillings in the United States have been reduced by over 50% since 2010. The figures show there were almost 1.6 million fillings as of 2010, with 1.53M of those personal bankruptcies. In 2018, there were just over 770, 000 bankruptcies filings, with 97% of those for consumers. According to Roberts, the bankruptcy filings have not been this low since 2007.
Here are a few reasons why the number in consumer and corporate bankruptcy filings dropped:
Corporate entities and consumers may choose not to file for bankruptcy because it has become increasingly costly to do so, without enough assets to protect. According to Lorraine Greenberg, a lawyer from Chicago, people cannot afford to hire lawyers for filing bankruptcy.
As a client, one may be required to pay up to $1,500 to file a for a Chapter 7 bankruptcy case. This charge doesn’t include court expenses and other costs, she added. Those fees are generally around $350.
One study conducted in 2017 discovered that the average costs of an attorney to file for Chapter 7 is $1,200. Typically, debtors are required to pay approximately $3,500 to file Chapter 13 cases. These charges are paid overtime, as a part of the resolution of the case.
Ironically, American seniors are filing for Chapter 7 case at high rates, grappling with small incomes and health-care expenses, which can be very costly.
2. Unpaid Medical Expenses
Another reason why there is a significant decline in the number of people and corporate filing bankruptcy is because of unpaid medical expenses.
According to Greenberg, there is a connection between the low numbers of bankruptcy filings and increased in the coverage of health care under the Affordable Care Act. Not as many people need bankruptcy to eradicate medical expenses.
3. Recession-Era Federal Loan Program
Another reason why people keep away from filing bankruptcy is because of recession-era federal loan programs that allow suffering homeowners to work out contracts with loan lenders, instead of filing for bankruptcy.
4. Student Loan Crisis
Another possible reason for the drop off of bankruptcies filings is the student loan crisis. Today, Americans owe $1.5 trillion in student debt. The effort in reimbursements is soul-crushing for some students. However, many borrowers have a hard time legally proving the reimbursements are an unwarranted hardship. This means it will not help them if they file for bankruptcy.
According to experts, student loan borrowers might not be driven to bankruptcy because they are financially unable to collect other types of debt, such as those from credit cards.
As a matter of fact, people between the ages of 18 and 34 had fewer bankruptcies in the previous years for every 1,000 consumers, as opposed to people ages 65 and above. These are individuals who are burdened with student loans making it difficult for them to afford other assets.
Trying to decide if bankruptcy is right for you?
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