Bankruptcy filings continue to decline despite soaring credit balances

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According to US courts, fewer Americans are relying on bankruptcy court to settle their financial affairs. Here’s when it might be worth filing for Chapter 7 or Chapter 13 bankruptcy. (iStock)

Bankruptcy filings declined when the coronavirus pandemic began in March 2020 as revolving loan balances fell sharply. Although revolving credit balances rose sharply in 2021, bankruptcy filings continued to decline steadily.

Personal bankruptcy filings fell 29.1% for the year ending September 30, according to the United States Courts Administrative Office. Annual Chapters 7 and 13 bankruptcy filings totaled 418,400 in 2021, compared to 590,170 in 2020.

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There are several reasons why bankruptcy filings have plummeted since the start of the pandemic. On the one hand, consumers have less revolving debt on their credit cards during this period. According to the US courts report, increased government benefits such as stimulus checks, foreclosure moratoriums and eviction bans may also have “relieved financial pressures in many households”.

But recent data from the Federal Reserve shows that revolving credit balances grew 7.7% nationally in 2021 alone, meaning some consumers may be considering filing for bankruptcy to pay off unsecured debts like credit cards and personal loans.

Keep reading to find out how to decide if you should file for bankruptcy, as well as your alternative debt repayment options like debt consolidation loans. If you decide to take out a personal loan to pay off debt, visit Credible to compare interest rates from several lenders.

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Rising credit balances have yet to spur bankruptcy demand

The outstanding amount of revolving loans fell sharply at the start of the pandemic, according to the Fed, as Americans aggressively paid off credit card debt and avoided taking out new loans. But as the country’s economy comes back to life and unemployment rates return to pre-pandemic levels, consumers are returning to old borrowing habits.

Revolving credit balances increased nearly every month of 2021, from $961.5 billion in January to $1.04 trillion in November. This suggests that consumers have higher balances on their credit cards, car loans and personal loans.

Revolving credit balances, April 2020 - present

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For consumers struggling to repay their debts, bankruptcy can provide much-needed financial relief. But there are other debt repayment options, like credit counseling, debt management plans, and debt consolidation loans, which is why it’s important that debtors know their options. .

If you’re considering borrowing a personal loan for debt consolidation, visit Credible to view your estimated terms for free without affecting your credit score. This can help you decide if this option is right for you.

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How to decide if you should declare bankruptcy

Bankruptcy is a legal process that aims to help consumers regain control of their finances. There are two types of bankruptcy for individuals: Chapter 7, known as liquidation bankruptcy, and Chapter 13, also known as reorganization bankruptcy.

Filing for bankruptcy can help you repay your debts on more favorable terms and reduce the amount of your debts. But that comes with serious penalties, including a lasting stain on your credit report. Additionally, the bankruptcy process is a public legal proceeding that typically requires the services of a bankruptcy attorney. Because of these consequences, bankruptcy is often seen as a last resort.

Despite its drawbacks, there are circumstances in which filing for bankruptcy is worthwhile, depending on The National Credit Counseling Foundation (NFCC). Here are some reasons for declaring bankruptcy:

  • Your outstanding debts are more important than your net worth and assets
  • Your income is not sufficient to meet your financial obligations
  • Creditors suing you for your debts, resulting in wage garnishment
  • You plan to borrow money to pay bills and necessary expenses
  • Your house is threatened with foreclosure

Each of the above situations may be reason enough to declare bankruptcy, but you should also consider your alternative debt management options. You may be able to recover your financial situation without resorting to bankruptcy. Visit Credible to connect with a knowledgeable loan officer who can help you navigate your debt consolidation options.

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Alternatives to filing for bankruptcy

Bankruptcy can provide a fresh start for consumers struggling to manage their debts, but it’s not the only way to get out of debt. Consider your alternative debt repayment methods:

  • Negotiate with your creditors. If you’re having trouble making your mortgage payments, call your loan manager to discuss your options like mortgage forbearance or a loan modification. If you owe the IRS money, sign up for a payment plan or pay less than you owe with a offer in compromise (OIC).
  • Sign up for credit counselling. A nonprofit credit counselor can teach you how to manage your debt through financial education. A credit counseling agency can also help you enroll in a debt management plan (DMP) and negotiate with your creditors on your behalf.
  • Consolidate credit card debt. It may be possible to get a lower rate on your credit card debt through a balance transfer or debt consolidation loan. You’ll need good credit to qualify for the best balance transfer credit card deals and personal loans for debt consolidation.

You can visit Credible to compare offers on free balance transfer cards and debt consolidation loans with a soft credit survey, so you can see if this debt management strategy is right for you.

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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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