Bankruptcy filings still falling, reversal expected

Even as Americans are paying more at the gas pump and grocery checkout, filings for bankruptcy protection have continued to decline, dropping 17.7% nationally and 19.1% in the 7th Circuit for the year ending June 30, 2022.

The Administrative Office of the U.S. Courts released the mid-year data Monday. Personal and business bankruptcy filings at the six-month mark in 2022 have reached 380,634. Comparatively, at the same time last year, the total filings were higher at 462,309.

Within the 7th Circuit, which encompasses Indiana, Illinois and Wisconsin, filings dropped to 40,926 halfway through 2022 from 50,569 at the same point in 2021.

Mark Zuckerberg, bankruptcy attorney in Indianapolis, said the conventional wisdom holds the continuing decrease is linked to the stimulus payments made in 2020. Households used the money to pay down their credit cards and now have enough credit on their cards to handle the higher prices, he said.

Although he is baffled the filings are still falling, Zuckerberg agrees with the other attorneys and economists who expect bankruptcies will start to increase as households get into trouble.

“People only file bankruptcy when they are about to get squeezed,” Zuckerberg said.

He explained that, in his experience, people seek bankruptcy protection when a financial disaster happens like a foreclosure, wage garnishment or car repossession. Many times, the individuals will take a second job and try to cover their debt but they cannot pay what is owed, he said.

Zuckerberg noted the mistaken perception is that people filing for bankruptcy are fiscally irresponsible. The reality, he said, is that individuals and families have an unexpected life event that alters their financial stability.

“My people are all good, hardworking people,” Zuckerberg said of his clients. “Life happens to so many people. They get a divorce, lose their job or get medical bills.”

The federal bankruptcy courts in Indiana have also recorded a decline in filings. Within the Southern Indiana District, filings totaled 8,110 at mid-year 2022, a 15.1% drop from the same time in 2021. The Northern Indiana District recorded 5,135 bankruptcy filings, a 17.1% decrease from last year.

Even before the pandemic, bankruptcy filings were falling.

On June 30, 2018, filings stood at 775,578. In the five years since, they’ve fallen 50.9%.

The decline has been stepper in the 7th Circuit with total filings reaching 89.635 in 2018 and falling 54.3% since.

Within Indiana, the Southern Indiana District bankruptcy filings are down 42.1% from the 13,995 filed in 2018. Likewise, in the Northern Indiana District, filings have fallen 43% from the 9,014 recorded five years ago.

Looking at his calendar for Tuesday, Zuckerberg said he had 18 appointments which matches pre-COVID levels. However, he said for the past several months, the number has been far less and sometimes he has started his day having only two clients scheduled.

Zuckerberg is most surprised more business owners have not filed for bankruptcy given the number of restaurants and shops that closed during 2020 and 2021. Nationally, business bankruptcy filings fell 31.1% from 18,511 to 12,748 for the year ending June 30, 2022.

Looking ahead, the Indianapolis attorney anticipates the Biden administration will take action on student loans, introducing a program right before the November election to forgive education debt.

Such a program, Zuckerberg said, would “dramatically increase filings.”

Yet even without some kind of student loan forgiveness, Zuckerberg believes filings will start trending upward at some point.

“People are going to need bankruptcy protection,” Zuckerberg said. “It’s just a matter of time.”

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