While job growth is stalled and the stock market’s a mess, there are a few signs that things are starting to turn around for the economy. One of which is a steady decline in the number of people and businesses filing for bankruptcy.
For the eighteenth month in a row, the number of bankruptcy filings in the metro Phoenix area has dropped on a year-over-year basis, The Arizona Republic reports. There were 1,847 bankruptcies filed in Phoenix last month, compared to the 2,153 filed in July 2011. That’s a 14 percent decline.
Bankruptcies have fallen on the national scale as well. According to the American Bankruptcy Institute, consumer bankruptcy filings fell 12 percent last month compared to a year earlier.
Some experts believe that the drop in bankruptcies can be attributed to greater responsibility among consumers. In other words, borrowers are taking on less debt and living within their means.
Others chalk it up to the historically low interest rates. “With steadying home prices and mortgage interest rates remaining at extremely low levels, it appears that market conditions are set up to allow for further declines in the mortgage delinquency rate,” Tim Martin, a vice president at TransUnion said.
The most common form of bankruptcy among consumers is Chapter 7. In a Chapter 7 bankruptcy, the debtor’s assets are sold off and the proceeds paid to his or her creditors. In most cases, the debtor will receive a debt discharge, even if the proceeds from the liquidation don’t cover all of the debtor’s debts.
If the trend continues, bankruptcy filings could soon fall to pre-recession levels. “The July filings continue to reflect the effects of sustained low interest rates and weak consumer spending,” ABI director Samuel Gerdano said. “We are still on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008.”
- Chapter 7: How it Works (FindLaw)
- Pros and Cons of Declaring Bankruptcy under Chapter 7 (FindLaw)
- The Truth About Bankruptcy: 5 Myths Debunked (FindLaw’s Phoenix Bankruptcy Law Blog)
- Chapter 7 Bankruptcy in a Nutshell: Check Out FindLaw’s Guide (FindLaw’s Phoenix Bankruptcy Law Blog)