Consumer Bankruptcy - A Brief Analysis (Back)

There have been many theories to explain why the personal bankruptcy rate has been on the rise since 1985.

The Stigma of Bankruptcy has Lessened
This theory suggests that, because of wider knowledge of the use of bankruptcy legislation amongst the general population and by specialists, such as Legal Aid, Community Counselors, Credit Counselors, and the legal profession, that more people decide to utilize bankruptcy for debt relief.

The Rate of Consumer Bankruptcy is a Function of the Unemployment Rate
This theory ties a rise in unemployment to an increase in the number of bankruptcies.

The Rate of Consumer Bankruptcy is a Function of Outstanding Consumer Credit
The people who postulate this theory fall into two sub-categories:

1. Persons who look upon personal bankruptcy as a cost of doing business or a bad debt experience.

2. Persons who might suggest that credit grantors are "authors of their own misfortune" for making credit "too easy".

The relatively easy access to credit is not a bad thing. After all, this is one of the most powerful factors that accounts for the strength of our economy. In a modern consumer society such as ours, with quite easy access to credit, we must accept the consequences of a certain number of bankruptcies.

What is the Experience in Other Countries?
If we look at our neighbor to the north, Canada, we find a remarkably similar trend to that of the U.S. In 1992 the U.S. bankruptcy rate hit a peak at 3 times the rate of 1980. Canada hit a peak in 1992 at 3 times the rate of 1980. The U.S. rate fell in 1994. The Canadian rate fell in 1994. The U.S. rate peaked in 1998 at 4.3 times the 1980 rate. The Canadian rate peaked in 1997 at 4.3 times the 1980 rate. The U.S. rate fell in 2000 to 4.0 times the 1980 rate. The Canadian rate fell in 2000 to 3.8 times the 1980 rate.