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Low unemployment rate can spur Chapter 13 filings

An improving job market is good news to the residents of Wisconsin, however, to economic experts, declining employment rates could mean an increase in bankruptcy filings.

Since 2010, the number of people filing for debt relief options has declined. In fact, from 2012 to 2013, consumer bankruptcies fell by 12 percent, according to the American Bankruptcy Institute. That is opposed to the spike of bankruptcy filings between 2006 and 2010, which was fueled by millions of Americans who lost their job during the recession and financial crisis.

According to a Chapter 13 bankruptcy trustee, the cost of filing resulted in the decline in bankruptcies. Filing costs, legal fees and more difficult eligibility requirements made it hard to file for debt relief. The tightening of credit markets also caused the decline. Economic challenges can result in banks disapproving loans. But as the economy recovers, the credit markets could make it easier for people to get loans.

As wages remain stagnant, interest rates are poised to increase and student loans relying heavily on graduates, insolvency, especially Chapter 13 bankruptcy filings, may increase. As more people find work, their ability to earn and purchase increases as well. Because salary is one of the factors affecting a Chapter 7, this increases the chances that they will not give up their property and file for a Chapter 13 instead.

Struggling with an overwhelming debt can be very stressful. Aside from being current with payment and accumulated interests, there are also harassing collection calls and notices to deal with.

Economic indicators are not the only reason many people end up insolvent. Unemployment, credit card debts and health issues are the common reasons many people in Wisconsin file for bankruptcy. Although a bankruptcy filing may seem difficult, with a sound financial plan, having a fresh financial start is possible.

Source: WBIR, "Bankruptcy decline could reverse amid better jobs picture," Jamie McGee, Jan. 13, 2013

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