Clark County January-July filings:
SOURCE: U.S. Bankruptcy Court, Western Washington District
Clark County bankruptcy filings have dropped by more than 11 percent this year, mirroring a trend that’s been observed across the nation.
American Bankruptcy Institute Executive Director Samuel Gerdano told news agency Reuters that he expects overall U.S. bankruptcy filings to total about 1.4 million this year, down from a five-year high of 1.53 million in 2010. But it’s a puzzling local and national decline, coming at a time when foreclosure rates and unemployment remain high.
Through July this year, the U.S. Bankruptcy Court’s Western Washington District has reported 1,526 Clark County bankruptcy filings, the large majority by individuals or families, as opposed to businesses. That’s down from 1,723 filings from January through July 2010, and near even with the first seven months of 2009.
The drop in personal bankruptcies reflects changing attitudes among spenders and an evolving credit market for borrowers, Gerdano said in an interview with The Columbian.
People who spent more than they could afford before unemployment and foreclosures skyrocketed have become more cautious — and that means that fewer are getting into trouble over debt, he said.
Meanwhile, others are being forced to be more responsible with their money because of stricter standards imposed by banks and credit card companies, Gerdano said. “Less credit is available to marginal borrowers.”
With interest rates at record lows, those who can get access to credit are often better able to afford their auto loans and are unlikely to see adjustable-rate mortgage payments climb, which means that they are less likely to get into trouble.
Despite the recent drop in Chapter 7 and Chapter 13 filings, U.S. and Clark County bankruptcies still remain near historically high levels. Two and a half times more local people filed from January through July this year as did during the first seven months of 2007.
Robert Gregg, a Vancouver attorney who’s been practicing law in Oregon and Washington for 30 years, recently added staff at his law firm to keep up with the strong demand.
Historically, medical crises among the uninsured have been a major spur of bankruptcy filings, and that still remains true, Gregg said. But bankruptcies linked to job losses are increasingly keeping him busy.
He speculated that the recent decrease in bankruptcy filings could be because the first wave linked to the housing market crash and unemployment spike has crested. But plenty of people are still struggling.
Gregg said that in Clark County he’s seen an increase in the number of Chapter 13 filings, which can take longer and often involve paying back a greater share of debt, but which also allow filers to hold on to more possessions than Chapter 7 filings. Chapter 13 bankruptcy is especially appealing to borrowers who owe more on their homes than their properties are worth, or who have fallen behind on mortgage payments but want to keep the house, he said.
It’s tough to predict whether the modest improvements of the past seven months will continue, because bankruptcy rates are influenced by more than just the health of the overall economy, Gerdano said.
When consumer spending climbs — generally good for the economy — so does household debt — generally bad for bankruptcy rates. “You can have rising bankruptcies in a rising economy when families are leveraging themselves (with debt),” he said. If something goes wrong, “There’s no cushion.”
With the Federal Reserve pledging to keep interest rates low through the end of 2012, Gerdano expects bankruptcy filings to keep declining slowly, remaining elevated but lower than unemployment levels might suggest.
Or maybe not. “Statistics, in bankruptcy, have absolutely no forecast power,” he said.