February Bankruptcy Filings Up 18% on Last Year

What happened

The number of new bankruptcy filings was 18% higher in February compared to the year before. There were almost 31,900 new filings last month across U.S. major filing categories, up from around 27,000 in February 2022, according to the American Bankruptcy Institute (ABI) and Epiq Bankruptcy.

So what

Bankruptcy figures are one of several indicators that help us understand the state of Americans' finances. The jump in the number of new filings is one of several signs that people's bank accounts are starting to feel the strain. Another is data from the Federal Reserve Bank of New York that shows an uptick in delinquencies as well as record high consumer debt in Q4 last year.

"The growing number of households and businesses filing for bankruptcy reflects the mounting economic challenges they now face," said ABI Executive Director Amy Quackenboss. Not only have pandemic relief efforts largely expired, Quackenboss said the combination of inflation and increasing borrowing costs have hit both individuals and businesses.

Now what

Filing for bankruptcy is a serious step, and not one to take lightly. It's important to fully understand how bankruptcy works, especially as it won't necessarily wipe out all your debts. The two main types of consumer bankruptcy are Chapter 7 and Chapter 13. Each works slightly differently, but both can be costly -- according to debt.org it can cost between $1,500 and $3,000 to file.

In addition to the cost, bankruptcy can do serious damage to your credit score and will make it difficult for you to borrow in the future. Chapter 7 bankruptcy will stay on your credit report for 10 years, while Chapter 13 will remain on file for seven years.

If you're having trouble keeping on top of your bills, there are a number of moves you can make before you declare bankruptcy. You might, for example, contact your creditors to see if you can negotiate a payment plan. Another route might be to consolidate your debt into a single loan.

If you do decide to file for bankruptcy, here are some steps you'll need to take:

• Complete a credit counseling course: In order to file for bankruptcy, you have to attend credit counseling with an approved agency. The counselor will look at your situation and help you explore options. There's usually a fee involved.
• Consult a bankruptcy attorney: Even if you plan to file for bankruptcy without a lawyer, at the very least it's worth getting a free first consultation. You might also see if you can get help with the legal fees rather than going it alone as it isn't a straightforward process.
• Collect the paperwork: In addition to the forms you need to fill out, you'll need to pull together a bunch of documents. These include tax returns, bank statements, information about your debts, and details of your assets.

If your debt has become overwhelming, bankruptcy could be a way to wipe the slate clean and start again. However, be aware that it's also a costly and time consuming process that can have longer term consequences.