The 2013 Consumer Bankruptcy Surge

Consumer bankruptcy attorneys across the country are anticipating a surge in bankruptcy filings in the year 2013. The stage seems set for a dramatic increase in the number of filings. Here’s why:

The bankruptcy reform legislation of 2005 became law on October 17, 2005. Many consumers were concerned about the availability of bankruptcy after the reform legislation took effect and so there was a massive surge in bankruptcy filings prior to the law’s effective date. One of the changes in the 2005 reform legislation was to increase the period of time between bankruptcy filings for people who needed to file again. Formerly, that period was six years for chapter 7 bankruptcies [the most common type]. Under the reform legislation, it was extended to eight years. The surge in filings in 2005 took place in the summer and early fall of 2005, so people who filed at that time will again be eligible to file bankruptcy in 2013. Since the economy remains sluggish (see below) bankruptcy attorneys expect many of their former clients to return for re?filing once they are eligible.

Sluggish Economy
The economy remains weak. Worse, there is a growing disparity between the rich and the rest of the country. More and more working families are struggling as the wealthy take a bigger and bigger cut of income. The economy will never improve until the working class is robust and has discretionary cash to fuel their buying power. A healthy working class is the engine of the economy and without it the economy will remain sluggish. Neither party seems willing to seriously address this issue. They speak of job creation, but you cannot effectively create goods and services [jobs] if there are no consumers with the ability to purchase them. Accordingly, most economists predict that the economy will remain sluggish through 2013 at a minimum. A sluggish economy results in an increase in bankruptcy filings.

The Fiscal Cliff
In 2011, Congress passed the Budget Control Act which mandates dramatic and automatic budget changes at the end of the year if Congress is not able to cut the deficit on its own. Among these changes would be the termination of tax cuts [i.e., higher taxes] and significant spending cuts. Over 1,000 government programs including the defense budget and Medicare would be put to the chopping block. The combination of higher taxes and cuts to social welfare programs would result in a renewed and significant recession and a fiscal crisis not unlike the one facing Europe now. Because of the political gridlock on Capitol Hill, many expect that Congress will be unable to avoid the cliff. A breakthrough appears nowhere in sight.

A worsened recession would drive many consumers into bankruptcy court.