It appears that there are fewer personal bankruptcies this year. There are about 1.2 million this year. This is a reduction of about 365,000 from the post-bankruptcy-reform high of 1.5 million in 2010.
Recently I had received a call from a (former) client that was distraught. She was looking for someone to provide some knowledgeable guidance. She is well compensated, but as a single mother who has run into a few issues that had drained her resources. Her home was underwater and on a balloon, she also had a new vehicle. She had been following the advice from friends that seemed to cause further hardship; including the stopping of payment on her mortgage to the point of foreclosure.
When we met, we went over all of her debts and they were surprising. Credit cards, 401 K loans, mortgage, student loans, auto loan and back taxes federal and state. Based upon her situation and the overall uncertainty of how Congress will handle short sales/foreclosure of homes in 2013 or beyond (The potential of forgiven debt being taxed as income terrified her). So we had to discuss the option of declaring bankruptcy. She apparently had already had met with a bankruptcy attorney who was asking for a huge retainer. I was meeting with her as a curtsey and was not charging her, she needed help and I could provide some.
The more we talked the clearer it became that she was strongly thinking that bankruptcy was her best option to get out from under her burdens.
So now as the banks start to loosen credit standards and consumer borrowing resumes to tick higher, more may find themselves in this her predicament again. The expected decline will start to flatten out over the next few years. But borrowing is projected to top $2.58 trillion this year, surpassing the previous record of July 2008.
But this is not expected to cause an upward bump in bankruptcy filings over this period. In part, that’s because a bigger share of unsustainable debt is student loans, which are not dismissed in bankruptcy. Student loan debt is projected to exceed credit card debt by the end of this year.