johnnymk

newsmax.com

On the heels of October's bankruptcy reform, first-quarter bankruptcy filings fell to their lowest level in 20 years, says the AP.

The news service cites Lundquist Consulting, which reports that fourth-quarter filings plunged 73% to 102,949 from 381,743 last year. On an annualized basis, household filings were reduced to one in every 261 households compared to one in 73 a year ago, according to the AP.

The bankruptcy reform laws passed by Congress took effect on Oct. 17 and restrict Chapter 7 filings, which allowed Americans to wipe out their debts completely. Now Americans are expected to repay what they owe if the court deems that they can afford to do so. Chapter 7 filings plunged 80% in the first quarter.

Bankruptcy filings have increased a bit recently, but this is likely due to Americans racing to file before the Oct. 17 deadline. In November, the number of bankruptcy filings averaged 500 a day. In March, that accelerated to 2,000 a day - but that is still lower than the 7,000 daily filings last year.

It is too soon to tell what the long-term affects of the new bankruptcy law will have on the economy. This could just be a temporary decrease in the filings due to the one-time deadline, or it could be the start of a trend due to the law's restrictions.

guiseppewv

I think the longterm affects will be postive from this law change. This keeps law forces people to be more responsible and does not allow them to just forget about their debt if they file for bankruptcy.

cocojambo

but i heard most people file bankruptcy due to circumstances beyond their control e.g loss of job, huge medical bills, etc

LegendKiller

That isn't entirely true. Many people can restructure without declaring bankruptcy and there are a large % that overextended themselves prior to the specific issue, further amplifying the problem.

I'd also like to point out that the numbers mentioned in the article are a bit deceptive. The year-on-year comparisons are comparing a year where everybody front-loaded their bankruptcy filings and now we are at a lull. This doesn't mean that the absolute number of filings will not revert to the mean eventually.

An example of this would be that if 400,000 people file every 2 years and 300,000 filed last year, only 100,000 will file this year. Does that mean we are better off? No, it just means it is front loaded.

The number will go back to it's long-run average, some companies have built that into their models already.