Suffering an Unfair Job Loss is Tough, our california employment attorneys can help.

Columnist Argues That Seeming Rise in Bankruptcy Filings May Be Artificial

February 16, 2011

Our Fontana consumer bankruptcy attorneys have been following consumer bankruptcy filings closely as a sign of the economic recovery. So we were interested to see a recent Reuters Blogs post suggesting that the way bankruptcy filing information is presented may be misleading. The Feb. 15 post from Felix Salmon shows a chart generated by the United States Bankruptcy Courts as part of its report on bankruptcy filings for 2010. That chart shows a steady rise in bankruptcies since December of 2006 - but in a way that Salmon suggests doesn't tell the whole story. Salmon looks at numbers he says were left out of the chart and concludes that rather than a steady rise, bankruptcies may be hitting a plateau or decreasing slightly.

A chart generated by the courts shows bankruptcy filings for each quarter since December of 2006, ending in December of 2010. But as Salmon notes, starting the chart then is slightly misleading because it wasn't long after October of 2005, when the bankruptcy law changes took effect. Those changes caused an artificial spike just before October of 2005, then an artificial drop just afterward. Furthermore, he wrote, the courts left out the first three quarters of 2010, which would have showed that the peak of bankruptcy filings was in the spring of 2010, not the end of it. By rearranging the data to include this information, Salmon shows that bankruptcy filings have reached pre-2005 levels, which he says may simply show that they're returning to normal after the law's change.

As Long Beach personal bankruptcy lawyers, we certainly like the idea that our economy is not going to be hit by ever-increasing rates of bankruptcy filings. And it's absolutely true that the 2005 law, BAPCPA, caused an artificial rush to file before it took effect, followed by a predictable drop in filings directly afterward. It would be nice to conclude from this that BAPCPA didn't achieve its stated goal of reducing bankruptcy filings, since bankruptcy is an important tool for people in financial trouble. However, as Salmon notes, we are still emerging from a recession, which would likely have driven bankruptcy rates higher regardless of whether the law changed. We suspect that the real effect of BAPCPA was to drive more people into Chapter 13 rather than Chapter 7. Judging by the courts' data, that worked better before the recession; Chapter 7 filings were 58 percent of all consumer filings in 2006, but 72 percent in 2010.

At Howard Law PC we help individuals and married couples pursue bankruptcy as a way to handle overwhelming amounts of debt. While Salmon was right that the chart was misleading, it is unfortunately true that bankruptcies have risen sharply over the past few years, especially as the recession took hold. Furthermore, bankruptcy filers increasingly come from all personal and financial backgrounds, including people who were doing well financially just a few years ago. Our Costa Mesa individual bankruptcy attorneys help clients get back on the road to financial security by paying down the debts they can and asking a bankruptcy court to forgive the others. Bankruptcy isn't usually fun, but for those willing to do the hard work, it offers a chance to free yourself and make a fresh start.

If you're tired of fighting off creditors demanding payments you know you can't make, you should call Howard Law to see how we can help. To set up a free consultation, send us a message online or call 1-800-872-5925.