Most of our San Diego readers are probably happy to see the occasional report about an improving national economy. After all, an improving economy means more jobs and better wages, which allows Americans to pay their bills on time and pay down debt as well. However, in what some people would consider a counterintuitive prediction, one recent report noted that bankruptcy filings may actually increase as the economy improves.
Anyone familiar with previous posts here knows that bankruptcy filings, and Chapter 7 bankruptcy filings in particular, are intended to give an individual or family a fresh start by discharging many debts that are owed. But, if times are really getting better, why would more people be inclined to file for bankruptcy protection? According to the recent report, much of it has to do with spending.
As the report notes, an improving economy usually brings about more spending by consumers. As a result, many people, perhaps even those who are at the current time in a relatively stable financial situation, will, in the coming months and years, begin to spend their money a bit more loosely. This could lead to debt crunches for thousands of people, leading them to consider Chapter 7 as an alternative to an unmanageable debt situation.
Everyone wants to see the economy improve, with more jobs and better wages, but San Diego residents should remember that the good times don't last forever. When an opportunity to improve an individual or family balance sheet presents itself, such as with a new job in an improving economy, it is important to remember that being free from debt is a great financial situation to be in on its own.
Source: WBIR.COM, "Bankruptcy decline could reverse amid better jobs picture," Jamie McGee, Jan. 13, 2014