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Bankruptcy Filings In 2011 ? The Calm Before The Storm

By Jay Fleischman, New York Bankruptcy Lawyer

Our economy is in the toilet, I don’t care what anyone says.  I’ve got well-educated, worldly friends who have been unemployed for well over a year, colleagues reporting that their divorce practices are flailing (people tend to remain together during hard times because they don’t have the money to live separately), and others reporting that real estate transactions aren’t going anywhere unless they involve short sales or foreclosures.

Why, then, aren’t bankruptcy filings still going through the roof?

If you find yourself in bankruptcy court you may hear it whispered in the hallways.  Filings are down, and the lawyers are wondering why.

It’s simple, actually.  Sad, but simple.

We’re in the calm before the storm.

Unfortunately, the problem is that consumers are still in debt up to their eyeballs but simply don’t have anything left to protect.  Their money has run out, their credit is shot to ribbons, and the house is in foreclosure.  There’s no job to worry about, no bank account to protect, and every spare penny is going towards living expenses.

Already, the news is pouring in that filings nationwide are flat or declining.  Rochester (NY)  is flat.  So is Indiana, give or take a bit.  Same with Hawaii.  In fact, nationwide numbers are down 8% from the same period last year (though from January to February 2011 the filings ticked up a bit, that’s because January is usually a slower month for filings overall).

Homeowners, rather than filing for bankruptcy, are enticed by mortgage loan modifications that mysteriously fail to materialize months down the road.  Some banks have halted foreclosures due to (ahem) irregularities with their paperwork (cough cough), but those moratoria aren’t going to stick around forever.  Debt collection lawyers are treading lightly when it comes to enforcing their judgments, knowing full well that aggressive action will merely force their targets into bankruptcy.

In other words, we’re in a holding pattern right now.

Personal bankruptcy filings for 2011 won’t be nearly as high as they were into 2010; some places may see an expansion, but overall the numbers should be pretty flat.  Economists will trumpet the filing numbers as heralding a grand era of prosperity, bank executives will raise champagne glasses in celebration.

Then 2012 will roll around, and all hell will break loose.  Unless something happens to alleviate the foreclosure and consumer credit crisis, that is.

If things remain unchanged, remember Margo Channing’s words:  Fasten your seatbelts, it’s going to be a bumpy night!

Image credit:  VascoPyjama/Flickr

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Full post as published by Credit Law Network on March 07, 2011 (boomark / email).