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2018 YEAR END BANKRUPTCY ANALYSIS

2018 YEAR END BANKRUPTCY ANALYSIS

As 2018 draws to a close, and 2019 begins in the midst of economic and political turmoil, now is a good time to address our financial environment, and disclose recent developments/trends which are now manifesting themselves in Bankruptcy Court. For the purposes of this article, we will confine ourselves to bankruptcy developments in the Southern District of Georgia, especially with respect to the Augusta Division.[i] In a previous article, published over five years ago, we discussed recent observations in Bankruptcy Court.  This article will follow up that previous article, and also identify new trends that developed during 2018.

  1. Single mothers remain the largest identifiable category of bankruptcy filers. The primary source of financial support for the children of bankrupt mothers does not come from the fathers, but instead from the federal government in the form of an earned income tax credit.
  2. An increasing percentage of homeowners who filed bankruptcy cases have participated in a mortgage loan modification within the previous five years. The number of successful loan modifications has increased significantly since 2013.  Unfortunately, the number of debtors in bankruptcy who have fallen victim to loan modification scams has also increased.
  3. For individuals with low income for distressed credit, the average duration of their automobile loans is over 60 months, with many lenders willing to extend loan terms of 72 months and even 84 months. At the same time, the amount of money used as a down payment is decreasing, which means that the borrowers are not generating any equity in the vehicle until the very end of the loan.
  4. The number of bankrupt debtors with educational loan debt continues to increase.  However, many of these student loan borrowers are taking advantage of income-based repayment plans, which prevent the loans from going into default.
  5. The amount of information and work necessary to adequately represent a client in bankruptcy has also increased significantly. This has resulted in an increase in fees. For instance, the court approved fee for a Chapter 13 case in 2013 was $3000.  That amount has now increased to $4500.
  6. Creditors are more willing to file lawsuits against consumers, and are also filing lawsuits for amounts that would not have been deemed worthwhile five years ago. In our experience, most creditors would not file a lawsuit unless they were owed over $1000. However, we routinely review lawsuits where creditors are seeking $600 or less.
  7. We continue to see an increase in bankruptcy filings among high – income earners usually in married households with a minimum of two incomes.

Many things have changed since the publication of our 2013 Bankruptcy Court observations. There have been some positive changes, such as the increased availability of income-based repayment plans for student loans, and the more efficient processing of mortgage loan modifications. However, the large presence of single mothers in bankruptcy, coupled with the increase in high–income filers are discouraging, and could get much worse if our economy encounters another recession.

[i] The Augusta Division of the Southern District of Georgia, where our firm primarily practices, includes the counties of Burke, Columbia, Glascock, Jefferson, Lincoln, McDuffie, Richmond, Taliafierro, Warren and Wilkes.