LINCOLN — Bankruptcy filings in Nebraska are down for a second year in a row after years of increases, but bankruptcy experts say the drop is not necessarily a sign of economic recovery.
More likely, they say, it has to do with reduced consumer activity starting in 2007 because of the recession.
That, in turn, probably led to less debt later on, said attorney John Turco of Omaha.
In addition, he said, many credit cards, banks and lenders have tighter restrictions on loans than they did before the recession, resulting in fewer consumers taking out loans they can't afford to pay back.
“A lot of people who would normally get into consumer debt have now been cut off,” Turco said.
Throughout Nebraska, bankruptcy filings were down 16.9 percent from 2010 to 2011 and are on pace to drop 9 percent this year, according to U.S. Bankruptcy Court District of Nebraska data through Oct. 31.
In Iowa, the numbers of bankruptcy filings started falling in 2010. So far this year, Iowa filings are on pace to drop 15.8 percent from a year earlier.
Nationally, bankruptcy filings decreased 11.5 percent from 2010 to 2011 and continue to fall in 2012, according to court data.
Donald Leu, CEO of Consumer Credit Counseling Service of Nebraska, said the federal Credit Card Accountability Responsibility and Disclosure Act of 2009 has made credit card holders more mindful of their credit card activity and debt.
He cited the requirement for credit card companies to chart customers' minimum debt payment rates and interest in a schedule on their bills that indicates how long it would take to pay the debt off with different levels of payments.
“That information alone was enough,” he said.
Leu said the credit card act would be a factor in a stronger economy because of the benefit to individual consumers.
“That is certainly going to go a long way for our economy, I think,” Leu said. “It does something for our household budgets.”
The three biggest factors in individual bankruptcy filings are medical bills, divorce and credit cards, said attorney James Nisley of North Platte, and attorney Trev Peterson of Lincoln said job loss can be counted among the top causes, too.
But a big factor in today's filings trend might be new mindsets among consumers.
The decreased job security Americans have been feeling since the onset of the recession can make them reluctant to go into debt, said attorney Bert Blackwell of McCook.
Kathryn Derr, an Omaha attorney, said she hasn't seen a decrease in filings at her office and she thinks many people wait too long before filing. “I definitely think that when the economy is bad, bankruptcy filings go up,” she said.
Eric Thompson, director of the University of Nebraska-Lincoln's Bureau of Business Research, said that households and businesses have been better off financially since early 2011, possibly contributing to declining bankruptcy filing rates.
From 2007 to 2010, bankruptcy filings in Nebraska shot up 48.2 percent to nearly 8,000. From 2007 to 2009 in Iowa, filings increased nearly 46 percent to about 10,000. Nationwide, the increase was 87.2 percent to nearly 1.6 million filings from 2007 to 2010.
That followed a spike in 2005 prompted by people racing to beat changes in bankruptcy law.
Filings from 2008 to 2009 increased the most outside the Omaha area and northeast Nebraska — 24 percent — likely because of low farm income in 2008, said Ernie Goss, professor of economics at Creighton University.
From 2009 to 2010, the Omaha area and northeast Nebraska recorded a 13 percent increase in bankruptcy filings, compared with a decrease of 1 percent in the rest of the state.
Turco said he's seen a decrease in every kind of bankruptcy filing and every kind of bankruptcy filer, except small businesses.
It's possible some people are settling their own debts to save money and avoiding bankruptcy, though her office remains busy, said Erin McCartney, an attorney in the John T. Turco law office.
Certain businesses are still having a hard time, Peterson said, and an increase in bankruptcy filings there is possible.
Thompson said, “Tighter lending standards may help reduce bankruptcies for households, but they won't necessarily help businesses.”
Blackwell expects the changes to be brought by the Affordable Care Act to help decrease bankruptcy filings related to high medical bills.
“I may have to go back to being a divorce lawyer again,” he said.
Peterson said he thinks bankruptcy filings might level out to a “new normal” in the next nine months to a year. He's hoping it's sooner than that.
“Barring any kind of economic disaster,” he said, “we're beyond the worst of it.”