BANKRUPTCY PREDICTIONS FOR 2018: CONSUMER CREDIT NEARLY BACK TO PRE-RECESSION LEVELS

BANKRUPTCY PREDICTIONS FOR 2018: CONSUMER CREDIT NEARLY BACK TO PRE-RECESSION LEVELS

Each year our office looks at the coming trends for consumer bankruptcy to figure out if bankruptcy filings are on the rise of will continue to fall.
Based on my past research in this area, bankruptcy filings are tied closely to the level of consumer debt. When that level become too high, payments for households become unsustainable and defaults begin to occur. That then leads to the rise in consumer filings. This is exactly what we saw in the 2007 time period. Revolving debt and house expense became more than families could afford and the housing market collapsed, taking jobs, banks and anything else connected to the housing market down.

In 2017 the amount of consumer credit has continued to rise. The below article found that revolving credit outstanding, mostly credit cards, increased at a 9.9% annual pace in October. Non-revolving credit outstanding, mainly student and auto loans, rose at a 5.3% annual pace.
In total, household debt totaled $12.955 trillion in the third quarter, up 0.9% from the spring, the Federal Reserve Bank of New York said last month. This level of consumer debt was the most on record, though the figure wasn’t adjusted for inflation.

http://news.morningstar.com/all/dow-jones/us-markets/201712077442/us-consumer-credit-increased-by-2052-billion-in-october.aspx

For a good breakdown of debt levels and areas of debt see below:

http://www.natlbankruptcy.com/household-debt-bankruptcy-trends/

More tellingly, the Federal Reserve number show that the pace of accumulating revolving consumer debt has picked up recently. This is mainly credit card debt used to mask over-spending when compared to available income. Growth in revolving debt which had been averaging between 4-6% between 2014-2016 now appears to be near 8%. See below for more detail on this trend.

https://www.federalreserve.gov/releases/g19/current/

If consumers are increasing revolving debt to make monthly expenses due to a lack of income, then the tipping point for consumer bankruptcy may be reached in 2018. There are also several unknown factors which may affect the 2018 filing numbers. Tax reform, loss of medical health insurance and other political changes may accelerate the trend towards a greater number of bankruptcy filings.

Based on the above, for 2018 it appears that we will continue to see increases in bankruptcy filing numbers as in the last few years, perhaps a little bit more of an uptick than past years in the number of filings. If debt levels continue to rise then expect to see sharper increases in bankruptcy filings over the next couple of years. Isolated events may also serve to increase filings locally. Hurricanes in Florida may increase filings once the FEMA hold on foreclosure sales and car payments expires at the end of 2017.

At Mickler & Mickler, we attend Court and see the bankruptcy trustees and judges in action several times a week. We have the experience to guide you to the right decision about whether to file a case, and if so, what Chapter to file. When you contact our office, we can help you in your case with sound legal advice.

Please contact Mickler & Mickler at 904.725.0822 or bkmickler@planlaw.com. We will be happy to set you up a free appointment to discuss your situation and potential solutions.

Bryan Mickler

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