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Bankruptcy rates follows the ebb and flow of the economy

Bankruptcy trends tend to follow economic cycles. Typically, when the economy is good and housing prices are stable, consumers spend more freely and rack up more credit card debt. Then when something happens, like a job lay-off, medical emergency or divorce, those consumers are in a financially vulnerable spot. This in turn leads to an increase in consumer bankruptcy filings.

Right now, with people still spending less and saving more during these post-recession times, bankruptcy filings are down. In fact, personal bankruptcy filings were down 13 percent for the first six months of the year. Over the past two years, filings have been down 20 percent.

Bankruptcy specialists also note this decrease comes after banks started to tighten up on borrowing guidelines and homes started to lose value. This led to people no longer treating their homes as piggy banks. Worried about not having home equity, and the possibility of job loss, many have just being saving and not spending.

Looking to the future, if bankruptcy filings continue to follow trends of the past, as the economy continues to improve and home values once again increase, consumers may end up being more confident and therefore spending more freely and using credit cards more often. Then -- once again -- if there is some kind of economic setback, these same consumers can find themselves in the situation of needing to file for bankruptcy.

However, the thing to keep in mind is that there is no shame in needing to file for bankruptcy as it's something that millions of Americans have had to do before in the past.

Source: Boston Globe, "Bankruptcies wane as US relearns how to save," Todd Wallack, Aug. 18, 2012

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