Improved consumer confidence, increased spending, and a strengthening economy greeted Americans at the start of 2014, but were Chicagoans any better off financially than they were a year ago? Looking at bankruptcy statistics from the Federal Judiciary, 55,094 residents in northern Illinois filed for bankruptcy in 2013. That's around a 3.2% drop from the 56,954 filings seen in 2012.
Any drop in bankruptcy filings means the economy continues to mend, and the improvements seen in 2013 resemble those of 2012 where filings dropped by 3.6%. However, does this drop in filings mean that families are finding it less necessary to file? Or have the indebted started to consider options like debt consolidation and negotiation with creditors?
Why Families Need to File
The need to file for bankruptcy revolves around money – or the lack of it, but understanding why bankruptcy must be filed may help you decide whether this important step is the right course of action. Although the stigma of bankruptcy isn't as acute in today's society, bankruptcy filings are public record, so the choice to file requires careful consideration.
According to studies at universities like Harvard, the most common reasons people file for bankruptcy include:
- Unpaid medical bills
- Loss of a job
- Poor financial decisions
- Divorce or separation
- Surprise debts
Year after year, these reasons remain the same, and families with unpaid debts today face the same sort of financial stress as they did in other decades.
Recession, Bankruptcies, and Recovery
In remarks to the U.S. House of Representatives, a research firm suggested in the late 1990s that "economic disasters" were to blame for the huge rise in personal bankruptcies. A decade later, as the Great Recession started decimating family budgets and business profits, millions of people started to file for bankruptcy, foreclosures hit an all-time high, and huge companies all but fell off the map.
Bankruptcies today aren't close to the levels they were during the recession, and the bullish stock market seems like evidence of investor confidence in the personal wealth and spending of the average consumer. However, more consumer spending tends to mean higher credit card debt, which might lead to some unfortunate bankruptcy filings as consumers start to use too much credit.
Confident Spenders Risk Bankruptcy
One credit card expert suggested that spending in 2013 and increasing credit card use could lead to unsustainable debt. Poor use of credit cards is one of the leading reasons why people end up speaking with a lawyer about bankruptcy. Despite the cautious and careful budgeting that many people adopted during the recession, those fiscally conservative habits could continue to erode 2014.
Increased spending could improve the economy in 2014 and lead to valuable job creation, but it could also mean more bankruptcies. The number of Americans with more credit card debt than savings was on the rise in 2013, which has been a trend for the past several years of the economic recovery. Indeed, the March 2014 Consumer Confidence Survey® showed improvement over numbers seen in February.
Bankruptcy Predictions for 2014
One of the biggest factors influencing spending, debt, and the likelihood of bankruptcy is the unemployment rate. The Bureau of Labor Statistics hasn't recorded much change in the country's unemployment rate in the last several months; however, overall unemployment has been on a downward trend since it hit 9.9% at the end of 2009.
Recent data on consumer spending indicates that spenders are again starting to take their credit cards out and visit the malls, due to rising incomes, more jobs, and the spring thaw. That's great news for retailers and businesses, but consumer spending could mean more trips to the courthouse for bankruptcy filings. Hopefully, families will be able to balance better financial circumstances with responsible spending in 2014.
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