Bankruptcy filings are down, but why?
What is the real reason behind the drop in consumer bankruptcies?
There are at least two schools of thought.
Bankruptcy filings dropped 8% in the first half of 2011 as compared to the same period last year. Consumer bankruptcies fell to 709,303 in the first six months of the year from 770,177, according to the American Bankruptcy Institute.
The drop in bankruptcies could be an indication of a better economy -- or it could mean that things are so bad people in debt trouble simply can't afford to file for bankruptcy.
“The drop in bankruptcies for the first half of the year shows the continued efforts of consumers to reduce their household debt and the overall pullback in consumer credit,” ABI executive director Samual Gerdano said.
If we look at the situation this way, perhaps the economy really is improving and consumers are getting their personal finances in order even as overall consumer debt increases.
Bankruptcy filings spiked during and after the recession as consumers struggled to maintain their standard of living while at the same time dealing with reduced income levels.
The drop in bankruptcies indicates a more conservative consumer; one who has learned lessons from the recession.
On the other hand, the drop in consumer bankruptcies might have nothing to do with improvements in the economy or the improved management of personal finances.
The decline in bankruptcies might be due to consumers having less control even as they spiral further into debt.
As CreditCards.com recently put it: Unemployed people are too broke to file for bankruptcy.
The unemployed tend to hold off on bankruptcy until they have found a job, and experts suggest we'll know the economy is improving when the unemployment level drops and bankruptcy filings increase.
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