Experts Say Decline In Bankruptcy Filings Is Temporary

Though the number of consumers filing for personal bankruptcy fell for the second month in a row in May, experts don't expect it to be the start of permanent declines.

In May, filings for consumer bankruptcy were down almost 6% from April, dropping to 136,142. These numbers were published on by the American Bankruptcy Institute, a group of bankruptcy professionals that includes attorneys and accountants. The American Bankruptcy Institute used data from the National Bankruptcy Research Center to ascertain these statistics. In April, consumer bankruptcy filings had also declined.

Samuel Gerdano, the Bankruptcy Institute's executive director, was quoted as saying, "I think the overall arc is up."  Gerdano went on to predict the number of consumer bankruptcy filings will continue to rise.

Despite this recent decline, the number of personal bankruptcies is still 9% higher than the same period in 2009, and have risen over 15% compared to the first five months of that year. High unemployment and unfavorable credit conditions continue to affect both consumers and small businesses, which often depend on personal lines of credit to survive.

Personal bankruptcy filings could continue to rise as long as these unfavorable economic conditions persist. According to Gerdano, personal bankruptcy filings could top 1.6 million by the end of 2010. This prognosis is higher than the 1.4 million filings in 2009, which was the highest number of personal bankruptcies since 2005, when amendments to the Bankruptcy Code made it more difficult for consumers to file bankruptcy and hundreds of thousands of Americans rushed to file before the change in law took effect.

In addition to the unfavorable economy, the oil spill crisis in the Gulf is likely to push bankruptcies even higher in Alabama and Louisiana. Gerdano emphasized the historical correlation between natural disasters and bankruptcy filings, due to subsequent job loss and disastrous effects on small businesses.

 

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