“A lot of people are on the precipice”, but bankruptcies are falling again



It was pretty quiet on the first day of business at Debt & Credit Lawyer’s new office in Norwalk in January after Wilton attorney Sergei Lemberg set up a kind of financial rehabilitation walk-in clinic on Main Avenue.

While not ready to install a revolving door just yet, Lemberg expects more people to walk through the welcome mat in the coming months as renewed economic confidence encourages more borrowers to come. into debt – with unintended consequences for some.

Last year in Connecticut, bankruptcy filings fell to their lowest level since 2007 on the brink of recession, according to data recently released by US courts, even as the Federal Reserve signaled that household debt approached a record high.

In Fairfield County, 1,400 debtors filed for bankruptcy with creditors, nearly 60 fewer than in 2015 for a 4% reduction, half the rate of decline from the last year. Statewide, fewer than 5,850 filers filed for bankruptcy in Connecticut, down 450 from 2015 and below the 5,900 debtors who did so in 2007.

Against this backdrop, Lemberg Law founder Sergei Lemberg has opened a new office in Norwalk called Debt and Credit Lawyer, offering walk-in hours for people burdened with crippling loans looking to make the first move. Lemberg said the clinic was quiet in its early days, but expects that to change as more Norwalk residents learn about the services and take the momentous step of trying to get out of bankruptcy.

“It’s like a movie – we see the picture, but we don’t see what’s behind (the making of the picture),” Lemberg said. “The picture is rosy: unemployment is down, the stock market is up, bankruptcy filings are down. Looking at this image, one would think that the actual reality is consistent. I’m not sure that’s the case – in fact, I think that’s probably not the case.

In February, the Federal Reserve Bank of New York estimated that US household debt stood at $12.6 trillion, up 1.8% from a year ago to its highest level since 2008 and approaching its all-time high of $12.7 trillion. While US household mortgage debt remains below its 2008 load and credit card debt is about equal, auto loans and student debt are up sharply.

The Fed study does not detail the status of loans by state. In a separate study released in early March, the Fed determined that Connecticut homeowners today prioritize paying off mortgages to a lesser extent than getting out of credit card and auto debt.

If subprime mortgages torpedoed household budgets in 2008 and 2009, subprime auto loans are getting less attention today. And Connecticut and the nation face an ongoing epidemic of new college graduates who find themselves on the streets seeking huge student loans and facing limited earning potential in the early years of their careers.

If there’s a silver lining, it’s the US economy, as employers ramped up hiring in January. Increased demand for labor could both bring those most in need back onto the payroll and kickstart stagnating wages that have limited the family’s ability to cope with debts.

“After the election, you saw a pretty big improvement in household and business confidence,” Federal Reserve Bank of New York President Bill Dudley said at a February conference in New York hosted by Cornell University. “One of the big open questions that we’re going to be evaluating over the next few months is, is this mind-boosting of animals, so to speak, really going to catch on and drive more spending?”

In its own 2016 Connecticut household and business lending report, the Federal Deposit Insurance Corp. calculated that for every $100 of outstanding loans by Connecticut banks, only 74 cents of that total is in arrears, compared to 89 cents per year. a year ago and nearly $3 in 2012 as consumers succumbed to the lingering effects of the Great Recession.

“We feel very good on credit,” People’s United Bank CEO Jack Barnes said on a January conference call on the Bridgeport-based bank’s 2016 results. “Our (loan) delinquencies are down; our charges continue to be very low. Our future prospects are very good.

Still, unexpected costs to households could be on the horizon, including health insurance premiums as the federal government struggles to replace the Affordable Care Act; and that the Fed sees interest rate hikes impacting people with existing credit card debt and other adjustable-rate loans, as well as people looking for a new loan.

About 11% of Connecticut residents saw their credit rating drop in the latest FICO analysis released by ValuePenguin. “These pressures have a lot of people on the precipice,” Lemberg said. “And there is a student loan crisis that is right there, simmering. … You see people coming in with these student loans, and they’re amazing.

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