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Why are Chapter 7 bankruptcy filings so low?

Even though the process helps individuals re-establish their financial stability, many people in California still view bankruptcy in a negative light. Perhaps because of this viewpoint, recent reports that bankruptcy filings recently hit a 10-year low might seem like good news. While some people might be avoiding Chapter 13 or Chapter 7 bankruptcy because they are handling their debts well, many others might be facing obstacles that prevent them from seeking debt relief.

The Great Recession saw bankruptcy filings spike to significantly high rates. In Sept. 2010, 1.53 million people filed for bankruptcy. During Sept. 2018, less than 770,000 people sought bankruptcy protection. While a reduction in filings might be expected as the recession falls further back in history, this is not the only explanation for the sharp drop.

Foreclosures can play a large role in bankruptcy since filing can at least temporarily stop the process. Post-recession rules gave homeowners the ability to work directly with their lenders to negotiate for more affordable mortgages or even temporarily delay payments. This cut out a portion of people who would otherwise file for bankruptcy solely to stop foreclosure.

This is far from the whole story, though. For many people, the cost of filing for bankruptcy is out of reach. Whether seeking Chapter 13 or Chapter 7 bankruptcy, many people in California are surprised to learn that there are several associated fees. Although these initial court costs can make bankruptcy feel out-of-reach, this may not be the case. Those who are struggling with debt are usually well advised to speak with an experienced attorney when exploring their options for debt relief.

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