By Dan Sparks, Partner, Christian & Small
Member of the American Bankruptcy Institute
The good news for many is that bankruptcy filings are declining nationally and locally here in Birmingham. In fact, this is the fourth year in a row for declining numbers.
This is in part because banks continue to make fewer loans. Since many loans that were made several years ago performed poorly, they have taken a while to go through the collection process. This led banks to make fewer loans during that time period, which has meant fewer loans made and therefore fewer loans going bad in recent years.
There has been a downward trend in business bankruptcy filings, and at the end of 2013, business bankruptcies were down about 30 percent from where they were at the end of 2012.
My banking clients and I expect we’ll continue to see the trend of declining bankruptcy filings as we go through 2014. Credit continues to become a little more available as opposed to less available regionally and nationwide. Banks are beginning to make loans again, and I don’t think the trend will reverse until the loans that have been made in the last 12 months and loans that are being made now are two to three years old. There will be some defaults as they cycle through, which could mean more bankruptcy filings at that point. We will probably see more consumer bankruptcies before we see commercial bankruptcies due to the resetting of many adjustable rate mortgages.
While it’s promising to see more activity when it comes to lower credit and lending, I think we’re far from seeing anything close to pre-recession levels. But overall, fewer bankruptcies are a good sign for the economy, and it’s good to see a slightly improved perception of the economy. Hopefully, the trend of declining bankruptcies will continue.