According to statistics from the Administrative Offices of the U.S. Courts, the total number of bankruptcy filings increased by 13 percent in the 12 months ending on September 30, 2023. Business bankruptcies during this time increased by approximately 30 percent.
Annual bankruptcy filings were 433,650 as of September 30, 2023, as compared to the 383,810 in September 30, 2022.
Factors contributing to the uptick in filings include rising interest rates and inflation.
Bankruptcy can be a stressful and complicated process, but it doesn’t have to be something you do on your own. While consumers can pursue a bankruptcy case on their own, or file bankruptcy pro se, without the assistance of an attorney, it is not always wise to do so. In fact, the benefits of hiring an attorney far outweigh the negatives in the long run.
According to the American Bankruptcy Institute, less than 50 percent of filers who pursued a Chapter 7 bankruptcy case without the assistance of an attorney had their debts discharged. Alternatively, 94 percent of filers represented by an attorney had their debts discharged.
Most consumers utilize a credit card at some point in their lives, and many of them carry credit card debt from month-to-month. The amount of credit card debt carried by consumers is growing. It is estimated that around 23.5 percent of all Americans struggle with some type of debt in collections status, according to the Consumer Financial Protection Bureau (CFPB), and much of this debt involves credit card debt. If a consumer is on the receiving end of a collections lawsuit for credit card debt, it is important to know how to respond.
A collections lawsuit can vary, depending on the jurisdiction, but, the steps are all fairly uniform. The first thing to expect is the consumer will receive a complaint filed in civil court, along with a summons. This summons should contain a number of important pieces of information including who is suing the consumer, whether any additional co-defendants are a part of the lawsuit, how much money the creditor is attempting to seek, which can include the balance owed, along with interest fees and legal fees, the date of the hearing, and how to file a formal answer or response to the complaint.
Bankruptcy offers people who are overwhelmed by debt an opportunity for a financial fresh start, either through liquidation (Chapter 7 bankruptcy) or reorganization (Chapter 13 bankruptcy). However, not all debts are eligible for a bankruptcy discharge. In our latest blog, we delve into what kind of debts are not alleviated when you file for bankruptcy, and what kind of debts can be more difficult to discharge.
Child Support and Alimony
Child support and alimony are debts that will stay with the filer even after a bankruptcy discharge is issued. The reason for this classification as nondischargeable debts has to do with public policy. These debts involve obligations to support dependents, and the court views these as important, which is why they must be fulfilled to provide for the well-being of the filer’s dependents.
The cost of healthcare has become a growing problem for many. One that has pushed patients to the brink of financial crisis. According to the Centers for Medicare and Medicaid Services, spending on healthcare in the U.S. has reached a record $4.1 trillion. The good news is bankruptcy can be used as an effective tool to eliminate medical bills, giving the consumer a fresh financial start.
According to figures from the 2021 U.S. Census, approximately one in every five households, or roughly 19 percent of all households, were not able to pay for medical care when it was needed. Many of these bills go unpaid and result in collections actions against the consumer. In fact, according to the Consumer Financial Protection Bureau (CFPB), in 2022, whenever debt collectors contacted consumers, medical debt was the main reason for this communication.
Credit card spending among American consumers has hit a high of $1.2 trillion with $116 billion of this balance added during 2023 alone. Some areas of the country are adding to this debt balance more than others with California, Texas, and Florida being at the top of the list.
WalletHub recently conducted a study of all 50 states, using data reported from TransUnion and the Federal Reserve, adjusted for inflation. They found that certain areas of the country have been contributing significantly to the current national credit card debt while others have been contributing significantly less.
A number of consumers are defaulting on their credit cards and car loans to the point where the number of defaults reported are the highest seen since the financial crisis. With inflation not nearing an end any time soon and interest rates continuing to rise, the number of consumers defaulting is expected to grow.
This information comes from data provided by the credit agency, Equifax. The agency found that credit card delinquencies have hit 3.8 percent while car loan defaults have hit 3.6 percent. These figures are the highest ones seen in more than 10 years.
While not all bankruptcies cause a huge drop in a person’s credit score, it is possible a person’s score could rise after bankruptcy.
A consumer’s FICO score is one of the biggest determining factors in whether a person will receive approval for credit or financing. The FICO score will also help determine the interest rate a person receives on a credit card. Some lenders are willing to accept credit applications even with lower scores. However, if this happens, it is unlikely that the terms of the credit application will be favorable to the consumer.
The bankruptcy filing may or may not have a significant impact on the consumer’s credit score, depending on what the score was before the filing. The consumer’s payment history makes up approximately 35% of the person’s credit score. If the person had a poor payment history to begin with, the bankruptcy filing will not have as much of a noticeable impact on the score. If the person had an excellent credit score previously, the effect the bankruptcy will have on the credit score will be more significant.
Local courts are seeing a 10 percent increase in bankruptcy filings, according to a recent United States Courts report.
According to the report issued on July 31, the number of personal and business bankruptcy filings increased by this percentage in the 12-month period ending on June 30, 2023. The Administrative Office of the U.S. Courts reported that a total of 418,724 bankruptcy filings were made in the year ending June 2023, as compared to the 380,634 filed in the year ending June 2022.
Bankruptcy filers often fear losing everything they own when going through a Chapter 7 or Chapter 13 bankruptcy case. You may think that filing for bankruptcy means you have to give up your home, your car, and other important assets. This is simply not true. The vast majority of Chapter 7 cases are no-asset cases, meaning the debtor gives up no possessions. This happens for two reasons. First, you can allot for basic assets, called exemptions that are necessary for day-to-day living. What you can exempt varies from state to state, so be sure to discuss exemptions with an experienced bankruptcy attorney. For possessions that are not part of the exemption, creditors likely don’t want them. Under Chapter 13, you keep all of your assets, but the value of them figures into your repayment plan.
The U.S. Bankruptcy Code and Florida bankruptcy laws protect a great deal of a consumer’s property, if used appropriately.
