Bankruptcies rise to record level, indication that consumers kept spending in recession

Associated Press ^

[RCW2001]

Thu May 16, 3:50 PM ET

By MARCY GORDON, AP Business Writer

WASHINGTON - Consumers spent so freely during the recession that record numbers found themselves in heavy debt and filed for bankruptcy.

Personal bankruptcy filings rose 15.2 percent to a total of 1,464,961 in the 12 months that ended March 31, the Administrative Office of the U.S. Courts reported on Thursday.

Filings by businesses rose 10.7 percent to 39,845, including Enron's on Dec. 2.

Individuals account for about 97 percent of all bankruptcy filings.

Consumers lured by sales, car deals and low interest rates spent heartily, said Samuel Gerdano, executive director of the American Bankruptcy Institute, a group of bankruptcy judges, lawyers and experts. The strong spending helped make the recession shallow but added to household debt, he said.

"Consumers did their part to make the recession a recessionette," he said. "Consumers still have confidence in the economy."

Gerdano noted that consumers were attracted by free-financing deals on vehicles and that lower interest rates brought a surge in mortgage refinancing that put more spending money in people's pockets.

Consumers now are keeping the recovery on track. They shopped with more gusto in April, pushing retail sales up by 1.2 percent, the Commerce Department (news - web sites) reported Tuesday.

The majority of consumer bankruptcy filings are filed under Chapter 7 of the U.S. Bankruptcy Code, which allows people to dissolve their credit-card and other debts. Chapter 7 filings during the 12-month period jumped 17.2 percent, to 1,059,777.

In return for having their debts erased, people in Chapter 7 cases often turn their property over to a bankruptcy trustee, except for basic necessities such as a car, clothing and work tools. Property with value is sold to pay creditors. Debtors generally are allowed to keep some personal items and possibly some of the equity in their home, depending on state laws.

By contrast, filings under Chapter 13 — in which people repay debts over time in accordance with a court-approved plan — rose 10.2 percent to 433,107.

Both the House and the Senate have approved legislation that would make it tougher for people to wipe out debt in bankruptcy. President Bush (news - web sites) has indicated he would sign it.

But Sen. Charles Schumer (news, bio, voting record), D-N.Y., said Wednesday that the bill might have to wait another year if Republican and Democratic negotiators cannot soon resolve an abortion-related provision.

The bankruptcy legislation has been pushed for several years by banks and credit card companies. Its supporters say stricter rules are needed to stop abuse of the bankruptcy system by people who can afford to pay their debts.

"We have again set a new record high in the number of bankruptcy petitions filed. That is why I continue to be committed to real bankruptcy reform," Rep. Henry Hyde (news, bio, voting record) of Illinois, the chief Republican negotiator, said Thursday. "I continue to hope we can resolve the extraneous but troublesome issue of abortion so this reform can become law."

[connectthedots]

Historically, an increase in bankruptcies is an indication that a recession is ending. People put off bankruptcies until the timing is best, and what better time to file than just when you think your future is about to change for the better.

[habs4ever]

Consumers always spend in a recession, and now that personal income is more stable than in any period in history, this gauge masks other problems that demand side economists would rather avoid.But these types are also the first to misdiagnose productivity growth, as well, that's why a focus on the consumer first is a poor way to measure the aggregate growth and demand in the economy.

[SamAdams76]

It is too easy to file for personal bankruptcies these days. Most individuals filing for bankruptcy can in fact pay down their debts with a little sacrifice and discipline. But it is made too easy for them to default on their debts so they take advantage of it.

I have always lived within my means and have done without the flashy new cars and the fancy stereos and the Brooks Brothers suits. Instead, I buy used cars, pay cash for my home electronics at Circuit City and buy suits off the rack at a department store. I have never had a problem with debt and have never lived the high life either. So it makes me angry to see others living way beyond their means, obtaining the luxuries that I have denied myself, and then simply declaring bankruptcy and getting a clean start, where they can repeat the cycle all over again.

[DoughtyOne]

Just a few reactions to part of this.

When this record was addressed in another post earlier this year, I calculated the percentage difference between the previous record for bankruptcies and the new record.  I then compared the percentage increase in the population during that period in time.  The percentages were quite close.  Anotherwords, we're not looking at a significant percapita increase in personal bankruptcies.  The population is roughly 285 million today.  When it's 350 million in a ten to fifteen years, are we to be shocked that the numbers of bankruptcies increase along with the population base?

Individuals account for about 97 percent of all bankruptcy filings.  Okay, this sounds bad.  Now let's consider that corporate bankruptices probably dwarf the monetary losses by privately initiated bankruptcies.  In light of this, can anyone explain why corporate bankruptcies are practicly ignored in this article?

Consumers lured by sales, car deals and low interest rates spent heartily, said Samuel Gerdano, executive director of the American Bankruptcy Institute, a group of
bankruptcy judges, lawyers and experts. The strong spending helped make the recession shallow but added to household debt, he said.  These comments are nothing more than the introduction of bias into the equasion.  An economic downturn, layoffs and hardship go hand in hand.  Divorces go up at such times as well.  Heaven forbid we had an increase in those last year.  When all is said and done, the numbers of bankrupticies to the population base has remained constant.  The purchases of consumers is a smokescreen.  It implies fiscal carelessness.  It disregards the economic downturn.

Both the House and the Senate have approved legislation that would make it tougher for people to wipe out debt in bankruptcy. President Bush (news - web sites)
has indicated he would sign it.

But Sen. Charles Schumer (news, bio, voting record), D-N.Y., said Wednesday that the bill might have to wait another year if Republican and Democratic
negotiators cannot soon resolve an abortion-related provision.

The bankruptcy legislation has been pushed for several years by banks and credit card companies. Its supporters say stricter rules are needed to stop abuse of the
bankruptcy system by people who can afford to pay their debts.

That's what this is all about.  Corporate donors have made the case that the public is abusing bankruptcy laws even though the figures don't back that up.

Don't count on the corporate bankruptcy laws that govern these interests to be revised.

"We have again set a new record high in the number of bankruptcy petitions filed. That is why I continue to be committed to real bankruptcy reform," Rep. Henry
Hyde (news, bio, voting record) of Illinois, the chief Republican negotiator, said Thursday. "I continue to hope we can resolve the extraneous but troublesome issue
of abortion so this reform can become law."

Strange that Henry would mention abortion in his comments.  I don't believe it's the way he's coming at this issue, but it would be one thing my first observation confirms, they could do to reduce bankruptcies in the long term.

[DoughtyOne]

To: RCW2001

Historically, an increase in bankruptcies is an indication that a recession is ending. People put off bankruptcies until the timing is best, and what better time to file than just when you think your future is about to change for the better.

2 posted on 5/16/02 4:08 PM Pacific by connectthedots
 

That's one interpretation.  Another would be that people don't feel the effects of a recession immediately, and they don't feel the benefits of coming out of a recession immediately either.  Those who have been laid off often reach rock bottom in a delayed fashion.  It isn't always mismanagement on their part.  Many people who think they're secure going into a recession, find out they aren't about halfway through.  And it's also hard for individuals to guage how deep a recession will be going in, something that even Alan Greenspan f---s up on once in a while.

[connectthedots]

Don't get me started on that idiot, Alan Greenspan.

[galt-jw]

notice the similarities between a society that wants free crap from the government-SOMEONE else can pay, and the individuals of society who want things they cannot afford, but buy them anyway-and when they go bankrupt-SOMEONE else can pay.

[DoughtyOne]

To: RCW2001

notice the similarities between a society that wants free crap from the government-SOMEONE else can pay, and the individuals of society who want things they cannot afford, but buy them anyway-and when they go bankrupt-SOMEONE else can pay.

8 posted on 5/16/02 5:33 PM Pacific by galt-jw
 

Which of us could afford to buy anything if we didn't go out on faith to buy a home, several cars and other products on credit?  If you want to see this nation go into a complete full blown depression worse than anything you could imagine, just eliminate that credit.  And if you think buying a used car is the answer, then nobody would be selling new cars.

Most people live on such a thin margin that when they lose their jobs, it doesn't take long before their bills are out of control.  Do you suggest that every one live on one income then bank the other?  There again, the economy would tank faster than you can say implosion.

Your vision of people runing out to purchase as much as they can before they manipulate the courts into giving them a free pass, is somewhat comical.  Do you have any idea what a negative impact a bankruptcy has on people?

Did you just compare people who've been laid off to lifetime welfare recipients?  LOL, nice touch.

Where's your vitriolic comments about the corporate free pass when it comes to bankruptcy. The personal bankruptcy probably runs around $50 to $150 K. Any idea what the average corporate bankrupcy is?

[Sungirl]

DITTOS! I worked with some people in New York...who would redo the inside of their house, had a new driveway put in....bought all the other improvements they could that woulnd't be taken away....then waited the mandatory 18 months or whatever it was and filed bankruptcy....really pi$$ed me off.

[galt-jw]

i was speaking to the context of those who buy tons of stuff they cant afford, consumer goods, not cars and houses, with credit cards. i too rang up lots of credit card debt once, and paid it off eventually, but it would have been easy to do the bankruptcy thing. i have a personal friend who declared bankruptcy, and bought a house with a loan only a few years, i think four, later.

no, if you cant afford crap you dont need, like eating out, movies, electronics, etc., putting it on credit and then finding out what you knew to begin with-you cant afford it-so you declare bankruptcy, COSTS us all. high ticket items essential to life, housing, auto, college, are not consumer goods.

[galt-jw]

which means WE pay ultimately for their desires, the same as socialism. those who produce pay for the desires of those who cant,or wont. like, never ending welfare, farm subsidies, etc.

[Nuke'm Glowing]

There is one intersting aspect to the conversation I see in the earlier posts. Individuals "should be required to pay more if possible" but if a corporation bites the big one, well, it's ok for them to file or get a government bailout. Fascinating differences in opinion, not that I have ever or will file bankruptcy, but my business has been impacted by both individual and corporate filings. The inequity is amazing. And the hypocricy on this issue demonstrated by our socialist government simply shows that they truly do want to eradicate the middle class.

[DoughtyOne]

If people go can be shown to have gone out and spent themselves into oblivion on purpose, I consider it fraud. They should be prosecuted. If somebody seemed to have a stable job, then lost it and it's been a year and they're really struggling, I would feel differently. We do all pay for those who declare bankruptcy for sure. And I don't like it eather. I even get angry when I see someone pick up something in the supermarket and set it down somewhere else. Somebody has to be paid to put that back.

[an amused spectator]

Nice analysis. You'll have to remember that Marcy Gordon is the AP newsslut who spent quite a few weeks trying to paint Enron as Dubya's scandal, all the while suppressing all Democrat connections to the scandal.

[DoughtyOne]

Thanks. There are so many news-prostitutes out there that I lose track. Still can't believe nobody from Enron has been charged with anything yet.