Bankruptcy filings continue to fall, reversal expected

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Even as Americans pay more at the gas pump and grocery store checkout, bankruptcy filings continued to decline, falling 17.7% nationally and 19.1% in the 7e Circuit for the year ending June 30, 2022.

The US Courts Administrative Office released the mid-year data on Monday. Personal and business bankruptcy filings after six months in 2022 reached 380,634. Compared to the same period last year, the total number of filings was higher at 462,309.

Within the 7e Circuit, which encompasses Indiana, Illinois and Wisconsin, filings fell to 40,926 in mid-2022 from 50,569 at the same time in 2021.

Indianapolis bankruptcy attorney Mark Zuckerberg said conventional wisdom holds that the continued decline is tied to stimulus payments made in 2020. Households used the money to pay off their credit cards and now have enough credit on their cards to manage rising prices, he said.

Although baffled that filings continue to fall, Zuckerberg agrees with other lawyers and economists who expect bankruptcies to start rising as households get into trouble.

“People only file for bankruptcy when they’re about to get stuck,” Zuckerberg said.

He explained that in his experience, people seek bankruptcy protection when a financial disaster occurs such as a garnishment, wage garnishment or car repossession. Often individuals will take second jobs and try to cover their debt, but they will not be able to pay what is owed to them, he said.

Zuckerberg noted that the misperception is that people who file for bankruptcy are fiscally irresponsible. The reality, he said, is that individuals and families experience an unexpected life event that alters their financial stability.

“My people are all good, hard-working people,” Zuckerberg said of his clients. “Life happens to so many people. They get divorced, lose their jobs or receive medical bills.

Federal bankruptcy courts in Indiana also saw a drop in filings. In the Southern District of Indiana, filings totaled 8,110 in mid-2022, down 15.1% from the same period in 2021. The Northern District of Indiana has recorded 5,135 bankruptcy filings, a decrease of 17.1% compared to last year.

Even before the pandemic, bankruptcy filings were declining.

As of June 30, 2018, deposits stood at 775,578. Over the next five years, they fell by 50.9%.

The decline was more marked in the 7e Circuit with total deposits reaching 89,635 in 2018 and down 54.3% since.

In Indiana, Indiana Southern District bankruptcy filings are down 42.1% from 13,995 filed in 2018. Similarly, Indiana Northern District filings have dropped 43% from the 9,014 recorded five years ago.

Looking at his schedule for Tuesday, Zuckerberg said he had 18 appointments, matching pre-COVID levels. However, he said, in recent months the number has been much lower and at times he has started his day with just two clients scheduled.

Zuckerberg is very surprised that more business owners have not filed for bankruptcy given the number of restaurants and stores that have closed in 2020 and 2021. Nationally, business filings for bankruptcy have plummeted 31.1%, from 18,511 to 12,748 for the year ending June 30, 2022.

Looking ahead, the Indianapolis attorney predicts the Biden administration will take action on student loans, introducing a program just before the November election to write off student loan debt.

Such a program, Zuckerberg said, “would dramatically increase deposits.”

Still, even without some kind of student loan forgiveness, Zuckerberg thinks deposits will start to rise at some point.

“People are going to need bankruptcy protection,” Zuckerberg said. “It’s just a matter of time.”

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