Sometimes the people that come into my office are embarrassed. They think everyone else in the world has things figured out, but they are a huge screw-up because things are not going great for them. The truth is 26,269 bankruptcy cases were filed in Alabama last year, meaning there are a heck of a lot of people in our state going through hard times right now. In fact, Alabama is actually doing worse than the rest of the nation when it comes to bankruptcies.
Alabama Bucks National Trend
According to the Administrative Office of the Courts, in 2016, “794,960 cases were filed in federal bankruptcy courts, down from the 844,495 bankruptcy cases filed in calendar year 2015—a 5.9 percent drop in filings. This is the lowest number of bankruptcy filings for any calendar year since 2006, and the sixth consecutive calendar year that filings have fallen.” This sounds like great news until you dig into the data and see that Alabama is not doing nearly as well as the nation overall.
As mentioned above, 26,269 bankruptcies were filed in Alabama last year. That is an increase of 597 bankruptcies over the previous year. So, while the nation as a whole is seeing a drop in the number of bankruptcies filed, Alabama is seeing an increase.
The data also breaks down bankruptcies into types. Only 270 of the 26,269 filings were business filings, the rest, a full 25,999, were personal bankruptcies filed by individuals and families. This means there a lot of people out there going through hard times even as the economists and the media claim the Great Recession is over.
Chapter 7 vs. Chapter 13
| Chapter 7 | Chapter 13 |
| 9,321 | 16,673 |
The data also breaks down personal bankruptcies by type. There are two main types of personal bankruptcy, Chapter 7 and Chapter 13. Each are named for the chapter of the bankruptcy law that created them.
Chapter 7 is what most people think of when they think of bankruptcy. It is the type of bankruptcy where assets are liquidated and debts are wiped away, allowing the filer to start over from scratch.
Chapter 13, on the other hand, is a newer type of bankruptcy where the focus is on repayment. The filer keeps their assets and gets a repayment plan that is supposed to allow them to catch up on payments and get their head above water. Debts are not wiped away, but gradually repaid.
The government has been pushing more people to file under chapter 13, and the Alabama data shows that. There were 16,673 Chapter 13 bankruptcies filed during 2016, compared to 9,321 Chapter 7 bankruptcies.
Some Perspective
While the bankruptcy data is not good news, it’s not necessarily bad news. Bankruptcy is a chance to hit the reset button. It’s an amazing opportunity for people who have run into a bad stretch and need a second chance. The data shows that people in our state aren’t afraid to take advantage of bankruptcy to put themselves in a better situation.