Economic conditions are improving significantly nationwide, and because of this, fewer consumers are in such dire financial straits that they need to seek protection from their creditors.
The first three months of the new year lent a lot of credence to earlier predictions that bankruptcy filings would fall considerably throughout 2012, according to new data from Fitch Ratings. In the first quarter of the year, bankruptcies are about 8% or 10% lower than they were during the same period in 2011, though that rate is expected to level off soon. Banks are once again broadening credit standards, and therefore allowing those with iffier borrowing histories to access loans, which in turn increases credit risk.
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By year’s end, it’s likely that bankruptcies will have fallen between 4% and 5% on a year-over-year basis, the report said. However, the rate of improvement in bankruptcy filings made nationwide between 2010 and 2011 will be nearly impossible to match.
In fact, lenders may already be seeing those effects take hold, as the number of filings nationwide rose 19% between January and February alone, according to the most recent data from the American Bankruptcy Institute. In addition, the number of filings per day – since February only had 29 days compared to January’s 31 – rose 27%. However, those figures were still 5% below the rate observed last February.
However, some of those changes may have been the result of lingering economic effects, the report said.
“The stagnant housing sector and high unemployment continue to stress the cash flow of consumers and businesses,” said Samuel Gerdano, executive director for ABI. “As consumers and businesses work to shed tremendous debt loads, there are times when bankruptcy is the only shelter to provide financial relief.”
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Many consumers sought bankruptcy protection during the recent recession, and many experts had said that at some point, these would have to reach a nadir; there are only so many people whose financial situations are tough enough that they need to file for bankruptcy protection. Consequently, as with issues like credit card charge-offs or foreclosure proceedings, there had to be a logical point at which financial issues would begin to move in the opposite direction after a considerable amount of troubles suffered by consumers nationwide.
Image: Quazie, via Flickr