A sharp increase in the number of personal bankruptcy filings in March provides more evidence that debt consolidation loans, despite those critics who decry them, serve a necessary function. After all, if more consumers would turn to debt consolidation services, they might be able to avoid having to file for bankruptcy. And that’s something that can only help consumers. Chapter 7 bankruptcy filings stay on individuals’ credit reports for 10 years, while Chapter 13 filings remain on them for seven. Consumers who try to apply for mortgage or other loans with bankruptcies on their credit records will be saddled with sky-high interest rates, if they earn approval for loan money at all.
The Debt Consolidation Alternative
Consumers can avoid the stain of bankruptcy by instead consolidating their debts into one monthly payment that they can afford. This keeps the collection agencies at bay. And while it does lower a person’s credit score, debt consolidation doesn’t harm it as badly as do bankruptcy filings. Unfortunately, a growing number of individuals who could benefit from debt consolidation have instead chosen to file for bankruptcy protection. The New York Times recently ran a story about a significant rise in personal bankruptcy filings in March. According to the story, which cited data from Automated Access to Court Electronic Records, a data-collection company, personal bankruptcy filings were up 19 percent this March when compared to the same month one year earlier. Federal courts reported more than 158,000 bankruptcy filings in March, the report said. That equals 6,900 a day.
The number of personal bankruptcy filings in March also represented an increase of 35 percent from February. In fact, the bankruptcy numbers are a record: the previous high in monthly bankruptcy filings in the last five years was the 133,000 that the country saw in October of 2009. March saw the most personal bankruptcy filings since the personal bankruptcy law was made more stringent in October of 2005, according to the New York Times story.
The Start of A Trend?
Is this the start of a trend? Will we see personal bankruptcy filings increase for the next several months? Let’s hope not. But such a trend wouldn’t be surprising. After all, unemployment is still far too high. People are struggling to pay their bills. Because their home values have fallen, they can’t take out home equity loans to help them survive. Some individuals can’t see any solution other than to declare bankruptcy. Of course, debt consolidation loans could help these consumers avoid having to file. The problem is, these loans receive such bad press that many consumers avoid them. And this simply leads to more people falling deeper into debt.