Bankruptcy Filings Boosted by Poor Economy

We’d all like to think that the nation’s economy is improving, but the rising number of business bankruptcy filings offers proof that commercial businesses throughout the country are still hurting. According to a recent story from the Reuters news service, business bankruptcy filings in the United States this January came in 7 percent higher than in the same month in 2008. An astounding total of 6,502 U.S. businesses filed for bankruptcy protection in January. At this rate, the economic slump will continue throughout the year and into 2011. That’s the type of bad news that no one wants to hear.

The Cause The reason for the continued growth of bankruptcy filings is simple: Consumers are hurting. Just look at the numbers. The national unemployment rate stood at 9.7 percent for January. That’s actually an improvement from December, when that rate topped 10 percent. But it still means that far too many workers are unemployed. It’s hard to visit the jewelry store, go out to the restaurant for a fancy meal or snap up a new car when you don’t have a job. To make matters worse, those consumers who are employed aren’t confident that they’ll still have their positions next week, next month or next year. Businesses are still laying off even their best workers. Again, not many people are going to buy a new TV or video game system if they’re worried that they’ll be collecting unemployment the following week.

Foreclosures Add to Problem At the same time, housing values have plummeted and residential foreclosures have skyrocketed. According to online foreclosure data company RealtyTrac.com, 2.8 million U.S. households received a foreclosure filing in 2009. That’s a record high. Again, few consumers are willing to pay for a $70 haircut or send their children to private violin lessons if they’re worried about losing their home. They’ll pay their mortgage first, if possible, and everything else second.

Where Are the Solutions? Unfortunately, there’s little evidence that the rate of business bankruptcy filings will decrease any time soon. Drive down your own town’s central business district and count the number of shuttered stores. It should make for a depressing drive. The only hope? Time. The United States has suffered terrible recessions and economic slumps before. It has always survived them and come out stronger. That will happen again. And this time, the hope is that we will have all learned from the mistakes of easy lending and lavish spending. If not, then we shouldn’t be surprised to see another round of bankruptcy filings in the next decade.