My colleague Jonathan Ginsberg pointed out the play that the bankruptcy filing numbers are getting in the press: his local paper reports that bankruptcy filings are soaring.
In looking at the filing numbers, it is important to remember that 2006 was an aberrational year in consumer bankruptcy. The bankruptcy “reform” act became effective mid October, 2005. Huge numbers of people rushed to file bankruptcy before the law changed.
After the law changed, there was a lull in bankruptcy filings. I think two things are behind the low filing numbers in 2006. People who were on the fence about filing bankruptcy accelerated their decision to file because of the consumer-hostile provisions of BAPCPA, so those folks who normally would have filed in 2006, filed in 2005 to beat the change.
Secondly, after the amendments became effective, it took a while for the public to realize that bankruptcy relief was still available and for bankruptcy lawyers to master the changes in the law. Some bankruptcy lawyers left the practice and debt collectors told debtors that bankruptcy was not longer available to them or for the kind of debt that collector was trying to collect.
Certainly, there was no drop off in 2006 of people up to their ears in impossible debt; prosperity did not break out because we erected barriers at the bankruptcy court door. People’s ability to deal with the debt they had remained unchanged.
So, one should be cautious in drawing conclusions from a comparison between bankruptcy filing numbers between 2006 and 2007. That said, my experience suggests that there will be an onslaught of bankruptcy filings in 2008: the mortgage meltdown, slowing economy, and higher awareness of bankruptcy’s continuing availability will make debt relief look good to the consumer.