Bankruptcy Law Firm

SMARTblog Website

  • About Us
  • Blog
  • Chapter 7
  • Chapter 13
  • Testimonials
  • Contact Us
You are here: Home / Archives for Causes of Bankruptcy

Does availability of credit increase or decrease bankruptcy filings? Both!

June 29, 2011 by Andy Toth-Fejel

In Monday’s blog I reported that the number of people filing bankruptcy during 2011 will likely be down about 5-10% compared to 2010. Why?

Specifically, do more people file bankruptcy when credit is available, or rather when credit gets squeezed?

My source for Monday’s bankruptcy filing data, Prof. Robert Lawless, has something to say on this question as well:

The long-term growth in U.S. consumer bankruptcies closely tracks the long-term growth in U.S. consumer debt. When the financial crisis hit, consumer credit dried up, and outstanding consumer debt experienced unprecedented declines. There are fewer reasons to file bankruptcy today because there was less borrowing two to three years ago.

Consumer debt also has a profound but perhaps counter-intuitive short-term effect on consumer bankruptcy rates. In the short-run, a decline in consumer credit will lead to a bump in consumer bankruptcy filings. As people run out of options–as they become less able to put this month’s grocery or utility bills on a credit card–bankruptcy becomes a more attractive option. People can and will continue to borrow to stave off the day of reckoning. If a lender is willing to extend credit, further borrowing is a rational decision.

Sounds sensible to me:

1) Most debt happens because of credit availability, so more bankruptcies happen when there more credit granted. (The exceptions are involuntary debts like lawsuits resulting from personal injuries or other disputes.)

2) Those with debt problems avoid filing bankruptcy if they can, so loose credit means some of them can avoid, or at least postpone, filing bankruptcy

 

 

BTW, if you’re interested in more of what Bob Lawless has to say, he is a regular blogging contributor to Credit Slips, “A Discussion on Credit, Finance and Bankruptcy.” One of the best in the business on this set of topics, it celebrates its 5-year birthday next month.

 

Filed Under: Causes of Bankruptcy

Contact Information

Bankruptcy Law Firm
1000 E. Law St.
Cash, California 55555
Business: 123-456-7891
Day Hours
Monday 9:00 AM to 5:00 PM
Tuesday 9:00 AM to 5:00 PM
Wednesday 9:00 AM to 5:00 PM
Thursday 9:00 AM to 5:00 PM
Friday 9:00 AM to 5:00 PM
Saturday Closed
Sunday Closed

Our Clients Words

Michael's service is second to none. I'm fortunate to have selected his firm to represent us in this serious matter.
— Clyde Drexler

I've had so much fun as a judge on American Idol this year. I just hope the censors let me back on so I can sing, sing, sing!
— Steven Tyler

I love baseball, apple pie and Chevrolet. By the way, I'm hitting it straight outta this park!
— Babe Ruth

It's been a wild trip so far. I can't wait to see what's right up around the corner. Thanks for the surprises!
— Terry Bradshaw

Recent Posts

  • Chapter 13 Helps You Sell Your Home
  • Bankruptcy Helps You Sell Your Home
  • More Bankruptcy Advantages with the Foreclosure Moratorium
  • Bankruptcy Advantages with the Foreclosure Moratorium
  • Short Extension to Foreclosure Moratorium

Archives

March 2021
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031  
« Feb    

Copyright © 2021 · Powered by MySMARTblog