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2012: The Year in Bankruptcy and the Economy

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December 2012 was the fifth anniversary of the Great Recession, which began in December 2007. Despite an impending “fiscal cliff” at the end of 2012, Congress managed to reach a compromise on January 1, 2013, abolishing most of the Bush-era tax cuts for wealthy Americans. The U.S. economy continues to show signs of recovery including:

• An unemployment rate of 7.8%, down from a high of 10.2%
• A large decrease in housing foreclosures
• A stronger housing market due to the lowest mortgage interest rates in history

But there are also problems looming which could slow an economic recovery.

The U.S. Deficit Has Exceeded $1 Trillion

For the fiscal year ending September 30, 2012, the deficit has exceeded $1 trillion for the 4^th straight year. Other problems the government faces include:

• The U.S. already reached its legal borrowing limit on December 31, 2012
• Automatic spending cuts (“sequestration”) that were temporarily avoided on January 1^st are set to begin March 1^st

The Unemployment Rate is Still High

Despite the unemployment rate decreasing from a high of 10.2% to 7.8%, it is still high compared to 4.9% in December 2007. In fact, the rate hasn’t changed since September 2012. The rate also does not take into account those who are underemployed and those who have stopped looking for work.

Food and Gas Prices Continue to Rise

Food prices spiked at the end of 2012 and will continue to be high in 2013. The U.S. had its worst drought in 50 years with 2012 being the hottest year ever recorded in the contiguous United States. Prices were especially high for corn, soybeans, feed, ethanol, and meat. The U.S.D.A. predicts food prices to increase 3-4% in 2013.

Gasoline prices have risen for 32 straight days, increasing more than 13%. Causes of the rise in prices include increases in crude oil prices, production cuts, and refinery closings.

Student Loan Debt Has Exceeded $1 Trillion

This figure was reported by the Consumer Financial Protection Bureau in 2012. Total student loan debt has surpassed the total credit-card balance and the total auto-loan balance of the United States. The statistics regarding student loan debt remains sobering:

• Each borrower carries a loan balance of more than $23,000
• Nearly 1 in 6 borrowers is in default

Fewer Consumers Filed For Personal Bankruptcy in 2012 but Bankruptcies Could Rise in 2013

According to the Administrative Office of the U.S. Courts, bankruptcies were down in 2012. However, there is some indication that bankruptcies could increase in 2013. The rumor that there will be an increase was sparked by what Judge Julia Gibbons told a congressional committee back in March 2012. Gibbons, Chair of the Committee on the Budget of the Judicial Conference of the United States, stated that court administrators expected bankruptcy filings to increase by 8% or more in 2013.

Some bankruptcy attorneys also believe that there could be a “mini” spike in bankruptcies in 2013 due to the 8 years since the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was enacted in 2005. The waiting period between bankruptcy filings in Chapter 7 is 8 years. So the theory is that many consumers who filed in 2005 may decide to file again in 2013, especially if they haven’t done well financially during the recession over the past few years.

A recent report by Columbia Law Professor Ronald Mann for the National Bankruptcy Resource Center shows that national bankruptcy filings in January were higher than expected. Bankruptcy filings decreased only slightly from December 2012 compared with January 2013 (down from 77,000 to 76,000). Professor Mann believes there is a likelihood of an increase in bankruptcy filings for 2013.

Americans are taking home less pay since the payroll tax cuts expired January 1. This means it’s difficult for Americans to keep up with rising prices for necessities such as food and gas. The Government itself is in financial trouble, which may lead to cuts in benefits and services that consumers rely on to financially survive.

We Help You Understand the Bankruptcy Process and How to Plan Your Financial Future

If you are having difficulty keeping up with your finances, you may need to consider bankruptcy as a possible option. Our resources page gives you information to help you understand what the bankruptcy process entails. We also offer the required credit counseling and debtor education courses that you must take if you decide to file for bankruptcy. Our courses help you better manage your finances and create a budget plan for the future.

You may also want to consult with a consumer bankruptcy attorney about all your possible options based on your unique financial situation. Use our free Attorney Locator to find one in your area.