The numbers for 2014’s bankruptcies are now in — and it’s clear that the past year saw low rates of bankruptcy filings not seen since the start of the Great Recession.
However, according to the Chattanooga Times Free Press (1/18/2015), several southern states rank among the highest bankruptcy rates in the country, an indicator that this region still has a way to go on the path toward economic recovery.
Fewer individuals are filing bankruptcy across the country due to continued low interest rates and high filing costs, as well as a rise in advertising for alternative debt reduction solutions, says Charles Huber, Principal at the Law Office of Charles Huber. However, these debt reduction services aren’t always as effective as they seem.
“One of the biggest reasons bankruptcy filings are down is because of heavy marketing for alternative debt reduction programs,” he says. “There is a lot of advertising for these services, which I feel are less effective than bankruptcy. They don’t preserve one’s credit rating any better than a bankruptcy filing. They can also be expensive and not effectively solve one’s debt problem, so a bankruptcy would ultimately be needed anyway.”
Another factor in 2014’s falling bankruptcy rate was the continued drop in property foreclosures. According to the Times Free Press, U.S. foreclosures fell by 29% to 1.1 million properties, the lowest rate of foreclosure seen since 2006.
And because bankruptcy is normally triggered by a major event like a foreclosure, fewer individuals are compelled to file bankruptcy as a way to cast off their debts, Huber explains.
“There is usually an event that happens to trigger the immediate need to file; the debts themselves are usually acquired over a long period of time,” Huber says. “Common triggering events are loss of a job or reduction of income, retirement, divorce, illness or sudden aggressive creditor action like garnishment of one’s bank account or wages.”
In the southern states, where bankruptcy filings are more common than anywhere else in the country, people have a higher tendency to file Chapter 13 bankruptcy rather than Chapter 7 bankruptcy, according to the Times Free Press. Unlike Chapter 7 bankruptcy, which allows one to discharge all of one’s eligible debts, a Chapter 13 bankruptcy involves the creation of a debt repayment plan.
Many people might consider Chapter 13 the more attractive option for filing bankruptcy because it allows one to keep all of his or her property. However, Huber says there are few instances in which a Chapter 13 bankruptcy is a better option than a Chapter 7 bankruptcy.
“I do not agree that someone should file Chapter 13 bankruptcy because they think there is less stigma than in filing Chapter 7,” Huber says. “I think Chapter 7 should always be the first choice, unless there is some clear reason for filing Chapter 13. If someone says they want to file Chapter 13, I always discuss this with them in person to make sure they have a real reason for wanting or needing to do Chapter 13 instead of Chapter 7.”