Data from the U.S. Bankruptcy Courts show a significant increase in Chapter 7 bankruptcy filings from 2023 to 2024. Let’s explore why this is the case and how you can prevent having to file for personal bankruptcy.
Inflation is down. Home mortgage rates are falling. As we approach the holiday season, things are looking better from an economic perspective. At least, that’s what’s being said on the news. The reality? Bankruptcy filings in Michigan are increasing, and are currently 15% higher than at the same point in 2023. What’s driving this surge in bankruptcies if the economy is recovering?
How Much Have Chapter 7 Bankruptcies Increased in 2024?
When comparing the data from Q2 of 2023 and Q2 of 2024, the statistics are alarming. A full 15% increase in the number of personal bankruptcies in the state of Michigan, most of it in Wayne County. Of course, Wayne County is the state’s most populated county, but, bankruptcy filings in Wayne County are up 28%, which is the highest rate in the state of Michigan.
Many factors contribute to bankruptcy. However, let’s look at the current state of affairs and see how you can prevent having to file for Chapter 7 bankruptcy.
Higher Interest Rates
One of the biggest stories in September of 2024 was the first announcement of a cut to interest rates being made by the Federal Reserve Bank. This came on consecutive interest rate hikes dating back to 2022, when inflation started to spiral out of control. The high interest rates were meant to help curb consumer spending and demand, helping to lower prices across the economy.
However, because the increases in prices were not limited to certain goods or services, many residents of the downriver area felt the squeeze. Whether it was at the grocery store, the gas pump, or even shopping online, the interest rate increases were almost as bad as the inflation itself, as businesses passed down the extra costs to consumers in both cases.
More spending on high interest credit cards was noted, and this has been one major reason why so many in Wayne County have been filing for bankruptcy. If you can avoid it, avoid using credit cards to purchase everyday goods and limit the amount of debt you incur.
Housing Costs Have Increased Dramatically
One industry that felt the pain of increased interest rates more sharply than most was the housing industry. The costs of materials to build homes skyrocketed in 2023, and have only recently started to come down in 2024. That being said, interest rates on mortgages also rose to new highs, putting added pressure on many homeowners and would-be home owners in communities like Wyandotte, Grosse Ile, and Trenton.
Many homeowners have what are known as ARM loans, or adjustable rate mortgages. These mortgages have interest rates that fluctuate based on the current interest rates set by banks and the Federal Reserve. When interest rates fall, their monthly payments decrease. But when interest rates are high, their monthly payments increase. Many took their loans out when interest rates were near 2%, but mortgage interest rates spiked in 2023, hitting a modern record of 8-9%. That can increase the monthly payment on a home by hundreds or even thousands of dollars.
If you have an ARM loan, it might help to refinance into a fixed rate mortgage in the fourth quarter of 2024, as many interest rates have fallen and you could reduce your monthly payments.
The End of Federal Aid Also Contributed To Bankruptcy Filings
During the pandemic, the Federal government sent stimulus checks to Americans to help them when their work was ground to a halt. Many Americans saved this money, but others used it to purchase goods and services they otherwise wouldn’t have been able to afford.
This injection of extra spending helped drive demand and inflation up, which then led to the sudden increase in interest rates, which then led to many cutting back on their spending. While this helped reduce inflation, it also made many resort to spending on credit cards and taking out personal loans. These are not good ways to manage finances, and many are now filing bankruptcy as a result of these economic factors.