The number of consumers filing for bankruptcy protection is spiking, possibly as a return to normal figures that were artificially lower during the COVID-19 pandemic, but also potentially as a sign that consumers are overextending themselves and feel like they have no other options.
About 39,000 consumers filed for bankruptcy protection last month, which is 18% higher than the same month a year ago. The number of filings on a year-over-year basis has now increased for 13 consecutive months, according to published reports. The number of filings is at a “dangerous” level not seen since the Great Recession of 2008, for both personal and commercial filings. The U.S. Bankruptcy court reported there were 403,000 non-business bankruptcy filings for the 12-month period ending June 30, which is 9.5% higher than the number for the year-earlier period. It should be noted that the 403,00 filings for the 12 months ending June 30 are well below the totals from 2019 (750,878) and 2020 (659,881).
Economists have gone back and forth about whether there will be a recession or not, and there have been plenty of reports indicating that consumers are still managing their finances despite spending more than ever and dealing with inflation and rising interest rates. But the number of bankruptcy filings tells a different story. There is normally a lag period of several years between when consumers start experiencing financial difficulty and when that difficulty reaches the point of needing to file for bankruptcy protection. Many states enacted foreclosure and eviction moratoriums during the pandemic, which also kept the number of bankruptcy filings lower than normal.
“The sustained year-over-year uptick suggests that the anticipated growth in bankruptcy filings is materializing,” noted Gregg Morin, Vice President of Business Development and Revenue at Epiq Bankruptcy, in a published report.
For companies in the ARM industry, not only are bankruptcy scrubs going to become more important before and during collection attempts, but also makes getting in touch with consumers and establishing payment plans and settling debts as quickly as possible more important, too.
