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Personal bankruptcy filings rise sharply

On Behalf of | Jun 1, 2023 | blog, Personal Bankruptcy | 0 comments

Rising interest rates and soaring inflation has made the financial situations of many Colorado residents unmanageable. Consumer debt in the United States reached $4.8 trillion in February 2023, and rising borrowing costs have made making payments on that debt very difficult for millions of Americans. Credit card delinquencies and auto loan defaults both increased during the first five months of 2023, and Chapter 7 and Chapter 13 personal bankruptcy filings were up by almost 20% for the country as a whole.

Debt trap

Consumers are being squeezed by inflation and the steps being taken to combat it. Supply chain issues and surging fuel prices led to the highest inflation rates in four decades, and the interest rate hikes that were introduced to prevent prices from rising yet further have made making ends meet even more difficult for many Americans. Consumers who used their credit cards to cover the costs of essentials now find themselves in a debt trap, and few economists are predicting a fast economic turnaround. The number of borrowers two or more months behind on their car loans has increased by more than 25% since 2021, and credit card delinquencies have climbed by almost 40%.

Bankruptcy filings

This confluence of factors has led to a surge in bankruptcy filings. In March 2023, Chapter 7 filings rose by 13% and Chapter 13 filings increased by 24% compared to 2022 data. When consumers file for bankruptcy in large numbers, lenders are forced to charge off billions in debt. Capital One Bank is one of the nation’s largest credit card lenders. In the first quarter of 2022, the bank charged off $845 billion in credit card debt. In the first quarter of 2023, that figure rose to $1.7 billion.

Debt relief

Consumers who wish to lower their monthly financial obligations can pursue debt relief or debt settlement, but these strategies are only successful when lenders are willing to negotiate. Personal bankruptcy offers the possibility of a fresh financial start, and filing a Chapter 7 or Chapter 13 petition puts at least a temporary halt to harassment from creditors and bill collectors.

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