Fewer Bankruptcies Based on Tighter Credit Standards
Throughout the beginning of the last decade, personal bankruptcies were on the rise. Easy credit led to higher debt for consumers who ultimately reached the end of the line and couldn’t pay their bills. For many, filing a Chapter 7 bankruptcy cleared their debts, especially those associated with credit cards, and gave them a fresh start.
However, changes in the bankruptcy law in 2005 made it harder to simply wipe the slate clean by filing for Chapter 7 or Chapter 11 bankruptcy. New rules for Chapter 7 bankruptcy demanded a more thorough examination of the debts, including the means test, and, if available, retrieval of assets to pay off creditors. While the new laws caused a modest decline in the number of filings, bankruptcies continued to rise until recently, when the annual numbers began to dip.
The reason, experts say, is that the recent economic meltdown led banks and finance companies to restrict consumer credit lending in 2008 and 2009. Consumers are now feeling the effects of that policy. With less credit available for people who depended on tapping their credit cards or home equity to pay their bills, personal debt has actually dropped.
With less debt, and more individuals using cash to pay bills, bankruptcies have begun to drop nationwide. The numbers are still high, however, with more than 1.6 million Americans expected to file for bankruptcy protection this year.
The economy is still stagnant, the unemployment rate remains above nine percent and millions of people cannot pay their home mortgages. Bankruptcy continues to be a viable option for people seeking a fresh start. If you are struggling with debt, contact a Massachusetts bankruptcy attorney.