According to the United States Court, annual bankruptcy and business filings in 2021 dropped by 24% and 33.7%, respectively. However, recently, there has been a gradual increase in annual filings. A report from Globe News Wire stated that bankruptcy filings in the first quarter of 2023 were 18% higher than filings from the previous year's first quarter, and this increase is likely to continue throughout the year. 

In this post, we'll explore some factors contributing to increased bankruptcy filings and how technology can make the bankruptcy filing process more seamless.

Potential Factors Contributing to Higher Bankruptcy Filings

Many individuals file for bankruptcy to mitigate the burden of debt arising from various factors, including economic, social, and personal circumstances. Some of these circumstances may include:

Inflation

Inflation, which is the general term for the rise in the cost of products and services, has emerged as a significant problem. The primary indicator of inflation is The Consumer Price Index (CPI), which measures the price changes of specific goods (goods households typically spend on) over a specified timeframe (usually for one year). According to Trading Economics, although the inflation rates are lower than the predictions, it's still high compared to the previous year.

Prolonged high inflation can squeeze people's spending power and mess up their financial security. In the economy, inflation can make money worth less, jack up the costs of everything, shrink the value of money left over after expenses, and make it tough to handle debts.

The effects of inflation are worse for individuals with fixed incomes, individuals dealing with interest rates that are subject to changes, and businesses that rely on fixed prices of goods and services. This financial strain on personal and business budgets has pushed most individuals to consider filing for bankruptcy.

Resurgence of Student Loan Interest

According to CBS News, federal student loan interest rates have risen since 2021. Currently, the rate for federal loans in 2023 is 5.50%, while the 10-year fixed-rate private student loan market has increased by 2.69%. In addition, the federal government rejected President Biden's proposal to cancel $430 billion in student loan debt. As a result, borrowers face increasing financial burdens due to accruing student loan interest. Many people are concerned about the financial burden of education debt, which has increased bankruptcy filings.

Credit Card Debt

An NPR report published earlier this year revealed that credit card balances have reached unprecedented levels, with the average balance per card reaching $5,474. This figure reflects a 13% increase since 2021. Dealing with debt can be challenging, especially when the interest rates keep increasing, making debt relief harder. When people cannot keep up with their credit card bills, filing for bankruptcy becomes a viable consideration.

Housing Market Instability

Fluctuations in the housing market can kickstart a chain reaction that threatens people's financial stability. To begin with, the rising interest rates trigger an increase in mortgage payments, leading to financial distress for many homeowners. Furthermore, a drop in property value will result in mortgage debts that exceed the market value of a property, leaving homeowners with the option of selling at a loss or defaulting on loans.

In times of declining property values and increasing mortgage payments, homeowners and employees may need help maintaining their financial stability. If one loses their job or experiences a decrease in income, it can become difficult for them to meet their financial obligations, potentially leading to bankruptcy.

Income Stagnation

Generally, due to inflation, people struggle to pay for necessities like housing, healthcare, and education, especially when their incomes cannot keep up with living costs. This financial strain makes individuals frequently resort to credit as a fix, which can result in a vicious cycle of mounting debt. 

For individuals whose earnings remain constant, managing debt can become challenging. This may lead to the need for financial relief. Furthermore, a stagnant income restricts financial flexibility, leaving individuals more susceptible to unforeseen expenses or financial emergencies, thereby increasing the possibility of declaring bankruptcy.

Medical Expenses and Healthcare Costs

Due to the financial hardship that unforeseen health concerns can cause, medical debt is a common reason for bankruptcy filings. The costs of the physician's appointments, investigations, medications, and treatments can add up quickly when unanticipated health issues occur. Even individuals with insurance may have to pay unexpected expenses for healthcare services their insurance provider does not cover.

The relationship between rising medical bills and other crucial living expenses can force people to use credit cards or loans to cover costs, initiating a cycle of unwanted debt. The financial strain of healthcare adds to the emotional stress of dealing with health challenges, making it challenging for individuals to maintain their economic well-being. Individuals with substantial medical bills may have to declare bankruptcy as debts pile up.

How NextChapter Facilitates Consumer Bankruptcy Proceedings

As a lawyer, effective tools and technologies make the intricacies of bankruptcy cases easier to handle. NextChapter, a leading provider of cutting-edge legal technology, is a valuable resource for lawyers seeking to simplify bankruptcy filing. In the following paragraphs, we'll explore how NextChapter assists with consumer bankruptcy proceedings via its features, such as virtual paralegal support.

It Simplifies the Filing Process with Cutting-Edge Software

NextChapter's bankruptcy software offers attorneys an efficient platform to manage bankruptcy filings seamlessly. This reduces the likelihood of errors and minimizes the time spent on repetitive tasks, thereby increasing billable hours with features like NextChapter Docs, which creates document templates and drafts, and NextChapter Cloud, which allows attorneys to access their cases and documentation on multiple devices connected to their accounts. Other valuable features include Client texting, notices and reminders, and mail integration.

It Offers Enhanced Efficiency and Accuracy

Aside from simplifying client onboarding and intake, invoicing, client communication, and client review requests, one outstanding feature is its integration of DebtorCC, which allows clients to fulfill the credit counseling requirements with certification. Aside from ensuring compliance with the state's bankruptcy regulations, it enhances the overall efficiency of the filing process by reducing manual calculations and paperwork, and attorneys can focus more on strategic legal analysis.

It Provides Virtual Paralegal Support

NextChapter offers virtual paralegal support, which combines smooth virtual assistance with legal expertise to help relieve attorneys of the bulk of the casework. Virtual paralegals help attorneys handle administrative tasks that take up time, such as client research and communications. This, in turn, frees up the lead attorney's schedule, allowing them to concentrate on crucial legal matters related to the case. 

This solution seamlessly integrates into an attorney's workflow, boosting productivity and improving client interactions. It is also more cost-effective when compared to hiring an in-house paralegal/staff. Outsourcing routine tasks to NextChapter's paralegal team allows attorneys to allocate their time and expertise to the more intricate aspects of bankruptcy cases.

Conclusion

Several economic and social factors can contribute to an upsurge in bankruptcy filings. NextChapter equips lawyers with tools to streamline processes and deliver more effective services. NextChapter is a shining example of the transformative power of technology to birth a legal industry that is characterized by increased efficiency, accessibility, and client-centered methods.