As local residents have found work again and started rebuilding their bank accounts, fewer are facing the difficult decision to file for bankruptcy.
Homes are appreciating in value. More people are working, confident they know where their next paycheck is coming from. Banks and consumers are using more caution when lending.
Those factors have not only led to increased consumer confidence but fewer bankruptcies being filed, University of Indianapolis associate professor of finance Rachel Smith said.
The number of people who filed for bankruptcy in Johnson County last year dropped nearly 13 percent, from 893 filings in 2012 to 779 in 2013, according to data from the U.S. Bankruptcy Court for the Southern District of Indiana. The number of filings last year was the lowest in the county since before the recession.
Johnson County bankruptcy filings have decreased 35 percent since 2009.
“It didn’t seem to be down tremendously in previous years when the filing numbers had been dropping, but this last year really seemed to be down,” Greenwood bankruptcy attorney Mark Sears said.
The same downward trend was true across central Indiana, where fewer residents in Marion County and all seven counties bordering it filed for bankruptcy in 2013, compared to the previous year.
The drop in residents struggling to pay debts and being forced to file bankruptcy is good news. But experts are concerned that bankruptcy filings and foreclosures could go right back up again if people forget the recent past.
“The concern is that banks have become less stringent with giving loans,” Smith said. “People may take more loans and take more risk.”
Several factors have led to the drop in bankruptcies being filed, not only in Johnson County but nationally, Smith said.
“The unemployment rate dropping has allowed people to generate higher income levels and feel more confident,” Smith said. “That’s probably the big one.”
The unemployment rate in Johnson County was 5.3 percent in December, according to data from the Indiana Department of Workforce Development. The county unemployment rate reached high marks of 8.3 percent in 2009 and 8.4 in 2010. Bankruptcy filings also reached a high point with 1,225 filings in 2009 and 1,208 in 2010.
“People were really struggling to find work,” Sears said. “That was the one biggest, single thing.”
Local companies recently began building expansions and hiring, such as Mitsubushi Heavy
Industries Climate Control, which began building a 34,000-square-foot addition to its Franklin facility last year, and National Trade Supply in Greenwood, which is adding 50 jobs over the next three years.
Average interest rate for a
30-year home loan is 4.37 percent, after reaching as high as
5.21 percent in March 2010, according to data from Freddie Mac. Lower interest rates allow people to pay off debt, instead of adding to the amount, Smith said.
Home values also have gone up and are holding more steady. The average sales price for local homes in January was $157,345, an increase of 15 percent from the same period a year earlier, according to a report by F.C.
People now have an easier time selling their home if they need to for financial reasons. During the recession, many people owed more on their homes than they were worth. People then fell further into debt when they had to sell homes that were worth less than what they owed in their mortgages.
“When we were having all of the foreclosures that led to bankruptcy, people were upside down in their mortgages,” Smith said.