Phoenix Bankruptcy Law News

Sorry, Bankruptcy Lawyers: Bankruptcies Drop 14 Percent

Good news for the economy. Bad news for bankruptcy lawyers: The number of bankruptcies is declining and could reach pre-recession levels by the end of the year, Reuters reports.

The number of bankruptcies fell 14 percent in the first half of 2012. If it continues to fall, 2012 could end with the lowest number of bankruptcies since before the 2008 financial crisis, experts say.

According to a report by the American Bankruptcy Institute and Epiq Systems Inc., 632,130 American consumers and companies filed for bankruptcy in the first six months of 2012. “We are on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008,” Samuel Gerdano, executive director of the American Bankruptcy Institute, said.

Gerdano attributes the fall in filings to lower interest rates. Since the 2008 crisis, the U.S. Federal Reserve has kept interest rates at historically low levels.

The low interest rates have probably helped many consumers and companies, who would normally be forced into bankruptcy, to keep up with their payments and avoid having to file. For consumers, Chapter 7 is the most commonly filed form of bankruptcy. In a Chapter 7 bankruptcy, the debtor’s assets are liquidated and the proceeds are paid to his creditors in the order of their priority. Generally, most types of debts are discharged in a Chapter 7, giving the debtor a fresh start.

Despite the fall in bankruptcy filings, this year has seen several corporate giants file for bankruptcy. So far, Hostess Brands Inc., Houghton Mifflin Harcourt Publishers Inc., and Eastman Kodak Co. have all filed this year.

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