Fewer local residents filed for bankruptcy last year, bringing Johnson County to a five-year low.
The number of people filing for bankruptcy fell 12.5 percent, from 974 filings in 2011 to 852 in 2012. Last year was the third year that fewer people had filed for bankruptcy since a peak in 2009, according to statistics from the U.S. Bankruptcy Court for the Southern District of Indiana.
Both Johnson County and the court, which includes 60 counties across Indiana, had the lowest number of bankruptcy filings since 2007.
The decline in bankruptcies in the state and nation is a sign of economic improvement, said Rachel Smith, associate professor of finance at University of Indianapolis.
Four factors contributed to the decrease, including more people finding jobs, housing prices increasing, increasing optimism about the economy and buyers changing spending habits.
“Unemployment has gone down,” Smith said. “It is giving people confidence. When you have income coming in, you’re less likely to file bankruptcy.”
People also are more confident that they’ll be able pay back their debts and wait longer to file for bankruptcy, she said.
The economic downturn and frequent discussion of national debt have caused people to pay closer attention to how much debt they have, such as with credit cards, Smith said. The amount of credit card debt nationally has decreased about 17 percent since 2008, according to a Federal Reserve report.
“Through the whole process we went through with the financial meltdown, people have become more prudent with their debt,” Smith said. “I think people have seen the risks of debt, so they’ve attempted to try to pay that down, especially that volatile, high-rate consumer debt.”
Mortgage foreclosures and bankruptcies are connected, since homeowners who go into foreclosure sometimes also are driven to file for bankruptcy, and fewer local homes have gone into foreclosure in recent years.
Smith said home prices have been increasing, which likely also helped decrease foreclosure-driven bankruptcy filings since people are not as often stuck with homes worth less than the mortgage.
“They owe more than their home is worth, and they can’t get out from underneath it. That improvement in the housing market and prices going up has allowed people to borrow equity and has prevented people from having to foreclose or go into bankruptcy,” she said.
The number of mortgage foreclosures did cause a spike in bankruptcies in March after the nation’s largest banks resumed filings following a change nationwide in foreclosure practices, Greenwood attorney Brian Schellenburg said.
Later in the year, most of the people filing for bankruptcy were being sued by someone trying to collect a debt, Schellenburg said.
“Near the end of the year, it’s really just medical bills or credit card bills,” he said.
Greenwood bankruptcy attorney Mark Sears said banks and lenders are filing lawsuits more quickly than they have in the past instead of waiting for collection agencies.
“Creditors tend to sue a lot more quickly now than they used to. Once a creditor files a lawsuit, that gets people (filing bankruptcy) a lot quicker,” Sears said.
Despite the decrease in the county, Sears said he hasn’t seen a decrease in clients at his office.
“It seems to be pretty much the same it has been for the past several years,” he said. “It just kind of keeps plugging along like always.”