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Bankruptcies fell 14% in 2012, continuing 2-year decline

State by state bankruptcy statistics, 2005-2012

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For the second year, consumer bankruptcy filings continued their downward spiral, and experts don't expect them to reverse course anytime soon.

"People have been forced to shed a lot of debt, either voluntarily or involuntarily," says Edward Boltz, president of the National Association of Consumer Bankruptcy Attorneys and a bankruptcy attorney in Durham, N.C.

In 2012 alone, bankruptcy filings plunged by 14 percent in the 50 states and District of Columbia, falling to fewer than 1.2 million. That comes on the heels of a 12 percent drop in 2011, according to data from Epiq Systems, which compiles federal bankruptcy information.

The chart below summarizes Chapter 7 and Chapter 13 bankruptcies by state and by federal court jurisdiction, through the third quarter of 2012. Click on a state to unfold details. Story continues below.

2013 bankruptcy filings

 

Steep decline in bankruptcies, debt
While the numbers still are high, it marks a steep decline from 2010, when almost 1.55 million consumer bankruptcies were filed.

The amount of consumer debt also has plummeted. As of November 2012, consumers had $858 billion in revolving debt, which is mainly comprised of credit card debt. Back in 2007 and 2008, consumers were carrying more than $1 trillion in revolving debt, according to the Federal Reserve.

While revolving debt has inched up from 2011, when it stood at $851 billion, it could in part reflect a brightening economy.

"The housing market and the overall economy are getting better, the job market is stronger and more people are getting back to work," says Katie Ross, education and development manager for the Massachusetts-based nonprofit American Consumer Credit Counseling.

On top of that, "Consumers have been able to educate themselves on financial matters and are in a better position when it comes to managing their money," Ross says.

Scott Pryor, resident scholar at the American Bankruptcy Institute, says the number of bankruptcy filings historically trail economic contractions, then declines as the economy picks up again.

Because the economy is driven by consumer spending -- which often is fueled by credit card purchases -- consumers tend to spend freely at the beginning and middle of an economic boom. Then when the economy falters, consumers lose "the ability to earn to offset their ever-increasing consumer debt," Pryor says. "Paying off debt is all they can do psychologically and economically."

Bankruptcies fell 14% in 2012, continuing 2-year decline

State bankruptcies: Nevada improves
In all states, the number of bankruptcy filings dropped in 2012, often by big percentages. In Nevada, which in recent years has had staggering numbers of filings, they fell 28 percent compared to 2011. It was the biggest drop among all states. South Carolina had the poorest showing, with filings down just 1 percent compared to 2011 bankruptcy figures.

In raw numbers, California still led with the most filings, topping 180,000 for 2012. But that's much improved from 2010, when the state had more than 255,000 filings.

Florida continued in second place, with nearly 80,000 filings. Georgia and Illinois both recorded more than 60,000 filings.

Tennessee leads in per-capita filings
In terms of per-capita filings, Tennessee led the list, with 6.88 filings per 1,000 residents, while Nevada and Georgia both had 6.43 filings per 1,000 residents. Yet for Nevada that's a huge improvement compared to 2010, when there were more than 11 filings per 1,000 residents.

Despite all the improvements, many Americans are still struggling in the current economy.

Ross says those who have been unemployed often end up taking jobs that pay less than they previously earned. So once someone lands a job, "They're still going to have difficulty getting back into positive cash flow."

Many of those who are now winding up in bankruptcy attorney Boltz's office are either substantially behind on their mortgage payments, or tried working with a for-profit debt settlement company and instead saw their financial woes multiply.

In 2008 and 2009, many of those who came to see Boltz were three or four months behind on their mortgage. These days, many have tried, and failed, to get a mortgage modification, and are six to 12 months behind on their payments.

In other cases, his clients first tried working with debt-settlement companies and instead saw their financial woes compounded.

In one case, a client had paid a debt settlement company $7,500 in fees but the company did nothing to help the client, Boltz says. Because of abuses, debt settlement compaies were barred from collecting fees upfront in 2010, though many have changed business models to remain in business, and they continue to attract consumer complaints.

Boltz says it's not unusual for clients to try debt settlement first before coming to a bankruptcy attorney. "The ones we're seeing are the tip of the iceberg."

Regardless of how much the economy improves or how well consumers do in reducing debt, there will always be those who need to file for bankruptcy, such as people who have recently divorced or patients with stacks of medical bills, Pryor says.

For 2013, Pryor says he doesn't expect the huge drop in filings that were seen in 2011 and 2012. If the economy chugs along as it did last year, "I would expect bankruptcy filings would continue to meander downward."

See related: Personal bankruptcies fell 12 percent in 2011, What to say when you can't pay

Published: January 14, 2013



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