I remember speaking with a local bankruptcy attorney a couple of years back about the future of bankruptcy practice. The attorney predicted that bankruptcy filings would start to decrease because of the lack of availability of new unsecured credit after the 2008 financial crisis. Until about mid-2007, just about anyone with a decent credit history could apply for a credit card and be approved for limits as high as $20,000 or more without any income or asset verification. After 2008, even someone with excellent credit was lucky to be approved for a $2,500 limit.
Many of the people who have filed bankruptcy since 2008 probably obtained their credit during the end of the “easy credit” days. Over the next few years, it is likely that there will be dramatically fewer filings related to credit cards and unsecured loans. Even now, this writer is starting to see generally lower amounts of credit card debt, and it seems that the decrease in local filings probably has at least some correlation to this. Bankruptcy filings were down about 10% in the Western District of New York last year, and this trend seems to be accelerating already this year. Although nationally the numbers are still up, this is probably a relatively-short lived phenomenom. At some point, the lower unsecured debt limits will translate into consistently lower bankruptcy filings.
There is no question that Americans will remain financially strapped for years to come. Millions of Baby-boomers refinanced their mortgages in their early 50’s, and with limited retirement savings, they are not retiring any time soon. We are also going to see a whole generation of college graduates who will owe more in student loans then they do on their mortgages.
While bankruptcy practioners can hope that the bankruptcy laws will be amended to deal with these debt situations, it is much more likely that enforcement of delinquent student loans will intensify rather than abate, and while I keep hearing talk of bankruptcy judges being given power to re-write mortgages, I will believe it when I see it. Sure, there will always be bankruptcy filings to deal with medical debt, business failures, and overspending, but the financial problems that Americans are most likely to face going forward do not have a good bankruptcy solution.