Increase in Consumer Bankruptcies Signals Growing Financial Distress

In a worrisome trend, the number of consumer bankruptcies has steadily risen during the month of August, indicating an alarming increase in financial distress for many individuals.

According to the latest data from Epiq Bankruptcy, a bankruptcy data-analytics firm, more than 39,000 bankruptcy cases were filed by Americans last month. This marks an 18% surge compared to the same period last year.

The data further revealed that there were over 41,600 new bankruptcy cases filed in August, which includes businesses seeking relief from their debts. This figure also reflects an 18% rise from August of the previous year.

What is particularly concerning is that this is the 13th consecutive month where the number of bankruptcies has experienced a year-over-year increase.

Throughout the pandemic, bankruptcy cases took a sharp decline. Experts assert that it typically takes years of grappling with debt coupled with a significant life event such as potential eviction or medical issues for consumers to consider filing for bankruptcy.

Gregg Morin, the Vice President of Business Development and Revenue at Epiq Bankruptcy, emphasized, "The continued year-over-year increases indicate the anticipated growth of bankruptcy filings is becoming a reality."

Significance of the Rise in Bankruptcies

The escalating number of bankruptcies serves as a stark reminder of the prevalent financial hardship faced by many individuals and businesses alike. While precise reasons may vary, it is evident that the ongoing economic challenges have taken a toll on financial stability.

With no immediate end in sight to the current crisis, experts remain concerned about the long-term implications and potential ripple effects on the economy.

Conclusion

As consumer bankruptcies continue to surge, it is essential to recognize the profound impact that financial distress can have on individuals and society as a whole. While these statistics may paint a bleak picture, it is crucial for policymakers, financial institutions, and communities to come together and provide support to those facing economic hardship. By doing so, we can navigate these challenging times and create a more resilient future.

Related: Is there a subprime credit-card crisis on the horizon?

The Rising Pressure of Rising Interest Rates and Inflation

The increasing interest rates and inflation are becoming significant factors contributing to a surge in bankruptcies, as disclosed by Amy Quackenboss, the executive director of the American Bankruptcy Institute. Even though some experts claim that the economy has managed to avoid a downturn, the latest bankruptcy statistics may cause concern among others.

Credit Card Debts and Financial Struggles

By the second quarter of this year, Americans have collectively accumulated a staggering $1 trillion in credit-card debt. Unfortunately, while credit-card debts continue to rise, more individuals find themselves in a struggle to stay current.

According to the data from the Federal Reserve Bank of New York, early-stage credit card delinquencies have reached their highest rate since early 2012. Additionally, car loan delinquencies have hit a five-year peak. These delinquencies refer to situations where borrowers are at least 30 days behind on their credit card bill payments.

Student Loan Payments Resuming

To compound the financial difficulties faced by many, federal student loan payments are set to resume in October after more than a three-year pause. This restart could potentially redirect approximately $9 billion of consumer spending each month towards student-loan bills, according to one estimate.

Fortunately, the Biden administration has announced a one-year grace period that temporarily alleviates some of the harshest consequences of non-payment, such as being referred to collections.