Drop In Bankruptices Continues (Forbes)   Leave a comment

When the first quarter of 2011 showed a drop in bankruptcy filings, everyone wondered whether this was a onetime event or a trend. It looks like it could be a trend, as bankruptcies continue to drop throughout the country. In the latest news, bankruptcies in upstate New York continued to fall for the 11th straight month, which is in line with reduced filings in Pennsylvania and Arizona.

The Numbers
According to the American Bankruptcy Institute (ABI), consumer bankruptcies declined by 6% in the first quarter of 2011 compared to last year.   Total consumer filings for the first three months of 2011 totaled 340,012, down from 363,215 recorded in early 2010.

The number of consumers filing bankruptcy in March was 144,657, an increase from 102,686 in February.  Despite the month-over-month rise, however, the March number reflects a 3% decrease from the 149,268 filings recorded in March 2010.

In the Western District of New York, this includes Buffalo and Rochester, bankruptcies declined for 11 consecutive months. The data can be attributed to fewer foreclosures and a reduction in available credit. According to the U.S. Bankruptcy court for that district, bankruptcy filings dropped  15.8%, representing a 7.8% decline in Buffalo and 28.7% in Rochester.

What Does It Mean
Even though bankruptcies filings are still high overall, consumers are doing a better job at controlling their debt. Total consumer bankruptcies are expected to drop below the 1.5 million filings last year, according to ABI.

While the East Coast follows the national trend, California is still seeing a lot of bankruptcies. One in every six bankruptcies nationwide originates in California.

Contributing to the overall downtrend in bankruptcies, credit card companies over the past few years proactively took initiatives to protect themselves from future problems by cutting access to credit, especially to irresponsible borrowers. Credit card companies rescinded issued cards to non-credit worthy customers and it became harder to apply for a credit card. A decade ago, credit card companies were eager to line up new customers and, through heavy consumer mailings, encouraged credit card applications even from customers who were not credit-worthy.

So, with less credit available, Americans are spending less and unsecured debt levels (such as credit cards) are improving. Eventually, these customers might be able to apply for credit cards designed to help build credit.

Also helping consumers is the drop-off in bank foreclosures of their homes. The so-called “robo-signing” scandal has caused major banks to halt foreclosures while they study their own procedures. Robo-signing includes the practice of signing off on foreclosure documents without actual confirmation of the supporting information.

Credit card companies, banks, consumers, lawyers and loan officers were all making huge mistakes that caused the deep recession and far-reaching problems that we are all working hard to rectify.  So far, it seems like we are making some baby steps forward.

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Posted June 4, 2011 by ilanamelissagreene in Uncategorized

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