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Bankruptcies on the Rise and the Evolving U.S. Debt Burden

April 15, 2010

Building on our last post on U.S. household debt being reduced primarily by default, and with consumer credit drying up, more and more struggling consumers are turning to bankruptcy as the only solution to solve their debt burden.  There were 158,141 U.S. bankruptcy petitions filed last month, a 35% increase over February’s figure.  Moreover, filings in a dozen states increased by double-digit percentages in the first quarter of 2010 compared to 2009 monthly averages (Personal Bankruptcies Hit a High and May Keep Rising, Time.com, April 5, 2010).

With a steady unemployment rate, and even an increasing “underemployment” rate ticking up to 16.9% according to the BEA, how long will the bankruptcy trend last?

Perhaps even more interesting is the vast increase in the debt burden causing the wave of bankruptcies.  According to the Federal Reserve, personal borrowing in the U.S. is ten times greater than in 1960 if you adjust for inflation.

During your strategic planning process, it may be worthwhile to consider the monumental increase in U.S. consumers’ debt burden over time.  What could happen if consumers become more and more debt averse?  Will the challenges facing adult consumers today socialize younger generations for a thriftier lifestyle?

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