A Welcome Drop in Bankruptcy Filings by Melissa Hathaway
The latest figures released by the American Bankruptcy Institute (ABI) have revealed a welcome drop in the total number of bankruptcy filings that took place across the United States in April 2013.
According to the data, which was provided by Epiq Systems, Inc., there were a total of 100,702 bankruptcy filings in April 2013, a fall of 8% from the 108,996 that were filed in April 2012.
Looking at the figures in greater detail, they show that consumer filings fell by a significant 7% - from 103,798 in April 2012 to 96,344 in April 2013. Total commercial filings saw an even greater decrease, falling by 16% from April 2012 to April 2013.
However, the news is not so positive for commercial Chapter 11 filings, which apparently increased by 5% across America as a whole, from 666 commercial Chapter 11 filings in April 2012 to 701 in April 2013. The risk of bankruptcy is all too real for many businesses in Florida, and in some cases can be caused by factors not totally within the business owner’s control. Smaller businesses can often be at greatest risk because they are more vulnerable to external forces and have fewer resources to enable them to survive incidents such as non-payment by customers, unexpected expenses or declining market conditions. It is therefore essential for small businesses to take as many measures as possible to protect their business operations and cash flow, such as ensuring they have adequate business insurance, keeping on top of debtors, and developing good marketing strategies to take advantage of new and existing markets.
Consumers spending more cautiously
The ABI has suggested that the drop in bankruptcy filings by consumers may partly be the result of their more cautious spending behavior.
“Households and businesses continue to adjust their balance sheets in response to low interest rates, tighter lending standards and decreased consumer spending,” commented ABI Executive Director Samuel J. Gerdano. “These trends will continue to suppress bankruptcy filings this year.”
The idea that consumers are being very careful with their spending is supported by the findings of a recent survey by Deloitte, which found that 94% of Americans who took part in the study were continuing to act cautiously and didn’t intend to increase their spending on food, drink and other household goods.
“One of the most notable year-over-year trends in the study is how embedded frugality has become due to the recession,” explained Pat Conroy, vice chairman, Deloitte LLP.
State variations in bankruptcy filings
The ABI data also revealed that the average per capita bankruptcy-filing rate across the USA increased in April to 3.52 (total filings per 1,000 per population) compared to the average rate of 3.40 for the first quarter of 2013.
Looking at the figures on a more local level, the per capita bankruptcy rate varied from state to state, with the following five states registering the highest per capita bankruptcy filing rate in April 2013: Tennessee (6.76), Georgia (5.76), Alabama (5.75), Illinois (5.59) and Nevada (5.27).
Impact of payday loans on bankruptcy
While the ABI report gives factual data on the number of bankruptcy filings, other studies have been carried out to investigate the possible causes of bankruptcy.
One such study was conducted by the Insight Center for Community Economic Development (Insight Center), which has recently published a report looking at the impact of payday loans on the number of Chapter 13 bankruptcies being filed in America and also on the wider economy.
The report looked at the incidence of payday loans in 33 states and suggests that these loans cost the American economy around $774 million in 2011 and led to a net loss of around 14,000 jobs.
According to the study, the use of payday loans also led to around 56,250 Chapter 13 bankruptcies in 2011, with an average cost of $3,000 per bankruptcy. When this bankruptcy cost is included in the overall cost calculation, the report claims the total loss to the economy from the use of payday loans is around $1 billion.
The report looked at the usage of payday loans at both national and state level. It found that the five states where the highest rate of interest was charged on payday loans were California, Texas, Florida, Mississippi, and Illinois.
“We wanted to give a true picture of the economic impact of payday lending – examining all potential economic benefits and costs and see how they balanced out,” explained Tim Lohrentz, author of the report and Program Manager at the Insight Center. “Our findings clearly show that payday lending is a drain on the U.S. economy.”
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