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There were 37% more bankruptcy filings in the U.S. Bankruptcy Court for the Central District of California this January than there were in January of 2023. In Los Angeles, the jump was even more significant–40.6%. This growth is significantly higher than the national increase of about 17%.
Of course, these statistics don’t tell the whole story. Here’s more information about which types of bankruptcy filings are increasing the most and the factors driving that increase.
Bankruptcy Filing Increases by Chapter
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of bankruptcy, and the one favored by most individuals filing bankruptcy. That’s because in a Chapter 7 bankruptcy case, you may be able to discharge (eliminate) most types of unsecured debt. That includes debt like medical bills, credit card debt and payday loans.
In 2021, about $88 billion in medical debt appeared on U.S. credit reports, and that was just the delinquent medical debt reported to credit bureaus. The total outstanding medical debt in the U.S. is believed to be more than double that amount. Credit card debt is soaring, too–it’s currently at an all-time high of more than $1.1 trillion. So, it’s easy to see why many in Los Angeles and around the country are looking to shed this type of debt.
In January, 643 Chapter 7 bankruptcy cases were filed in the Los Angeles division. That’s a 50.2% increase, up from 428 last year.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy isn’t most filers’ first choice because it involves a three to five year repayment plan. Given the option, most people will take advantage of the much shorter Chapter 7 process to wipe out debts instead of making payments. But, that won’t work for everyone. People often choose Chapter 13 if they make too much money to file under Chapter 7, have non-exempt assets they want to keep, or have secured debt like home loans and want to keep the collateral.
The increase in Chapter 13 bankruptcies in Los Angeles was more modest, as it was around the country. Still, Los Angeles Chapter 13 filings in January were up 13.5% compared with last January.
What’s Driving the Rise in Los Angeles Bankruptcies?
The high levels of debt mentioned above are just one of many factors behind the upward trend in bankruptcy filings. One reason the numbers are climbing is that bankruptcy filings were unusually low from 2020-2022. 2023 marked the first increase in filings since the Covid-19 pandemic started.
Filings were low during much of the years-long state of emergency associated with the pandemic for several reasons. One reason was a wide range of pandemic relief programs, including rental assistance, checks from the government, and enhanced unemployment benefits. There was unofficial relief, too–in the early days of the pandemic, many creditors offered their own programs for delaying or reducing payments. Some relief lasted even longer. For instance, federal student loan payments didn’t resume until October of 2023.
For many people who were struggling before the pandemic or lost jobs during the pandemic, that debt was waiting in the wings when the assistance stopped. At the same time, Californians–like all Americans–were hit hard by the combination of inflation and rising interest rates.
Mortgage lending rates are higher than they’ve been since 2001, a problem for both home buyers and those with adjustable rate mortgages. The average credit card interest rate is 27.91%. At the same time, the price of a dozen eggs more than doubled between 2019 and 2022.
Student Loan Debt May Play a Role
In November of 2022, the Biden administration issued new guidance to the Department of Justice that has made it easier for many student loan borrowers to discharge their loans in bankruptcy. Since this may be a small window for student loan borrowers to get relief–the guidance is virtually certain to change with the administration–it offers a powerful motivation for student loan debtors who have been considering bankruptcy to file now, and for those who previously thought student loan discharge in bankruptcy was out of reach to take another look.
Could Bankruptcy Be the Answer for You?
If you’re one of the many people in and around Los Angeles who has been struggling with debt, you may be feeling like there’s no way out. If it seems like you’re treading water, struggling to make payments while balances never seem to go down, it’s time to explore your options. Bankruptcy helps many people get back on their feet financially. At Borowitz & Clark, we’ve helped thousands of Californians regain control of their finances. To learn more about how we can help, call 877-439-9717 right now, or fill out the contact form on this page.