Bankruptcy filings fall in first quarter of 2011

Economy improves, and there's less debt left to file over

The new year started with bankruptcy filings falling nearly 6 percent compared to the first quarter of 2010, but experts are split on whether it reflects the beginnings of a real economic turnaround, or if it's just a blip on the radar screen.

"The economy generally is improving so much, but we're by no means out of the woods," says David Leibowitz, a consumer bankruptcy attorney in Illinois and Wisconsin and bankruptcy trustee in Illinois.

He cites the dip in unemployment, uptick in consumer spending and amount of government stimulus money pumped into the economy for fueling the decline in bankruptcy filings -- along with the fact that nearly 1.55 million people filed for bankruptcy last year alone. In addition, credit card debt has also fallen sharply during the recession, so there's less debt over which to file for bankruptcy.

2013 bankruptcy filings

On the flip side, Beth Mason, bankruptcy outreach coordinator for InCharge Debt Solutions, says the decline in filings came as a surprise because the number of calls to the nonprofit consumer counseling service from consumers seeking a way out of their financial morass has continued to rise.  

The first quarter of 2011 saw slightly more than 355,000 bankruptcy filings in the 50 states and District of Columbia, compared to more than 376,000 the year before, according to federal bankruptcy data compiled by Epiq Systems Inc.

In terms of raw numbers, California, which had the largest number of bankruptcy filings for the first quarter, at nearly 63,000, was one of just a handful of states that saw its number of filings rise.

The other top states for filers -- Florida, Illinois, Georgia and Michigan -- all saw their numbers decline.

Nevada still leads in filings
Although Nevada continued to lead the ranks with the largest number of filings per capita, those figures were down dramatically, from 10.32 per 1,000 people in the first quarter of 2010, to 8.94 per 1,000 this year.

Rounding out the top five, with between 6.5 and 7.5 filings per 1,000 residents, were Tennessee, Georgia, California and Alabama. California had the dubious distinction of replacing Michigan in the top five.

Leibowitz says some experts believe filings in the first quarter of the year tend to be higher than other quarters. People may hold off filing so they don't ruin the holidays, or they wait to receive their income tax refund so they can pay filing fees.

But Mason fears rising gasoline prices will put a crimp in consumers' budgets, forcing more into bankruptcy court. As of April 18, 2011, gas prices averaged $3.84 nationwide, according to the U.S. Energy Information Administration, up nearly $1 from the year before. The soaring price of fuel also drives up the cost of other goods, like food.

Mason says some consumers might opt to skip credit card payments in order to "eat and get to work."

While no one can predict how the bankruptcy filing numbers will shape up for the year, the 1.55 million filings in 2010 were still a far cry from the peak of 2005, when they reached about 2 million before the introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

With the introduction of the law came higher filing fees, a means test for eligibility, counseling programs and an eight-year moratorium before a person can file again.

Consumers rushed to file for bankruptcy before the law took effect, and that boom in filings, along with the time it took for attorneys to adjust to the new act, pushed filings down to 617,000 in 2006. Since that time, filings had been climbing steadily, until 2011.

See related: Personal bankruptcies rose 8 percent in 2010, What to say when you can't pay

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Updated: 11-25-2017