Articles

March 3, 2010

Bankruptcy rate points to consumer borrowing difficulties

Automobile dealers are more sensitive than many to the fluctuations in the economy, since their customers are often unable to make purchases if they lack the credit scores required to get financing.

That's why the industry may be concerned by the latest nationwide bankruptcy data. The American Bankruptcy Institute recently highlighted government data showing that in 2009, the number of filings nationwide was up 32 percent to 1,473,675.

In 2008, when the recession was generally at its height, 1,117,641 bankruptcy filings were recorded nationwide. The ABI also noted that the number peaked at about 2.07 million in 2005 as many people rushed to file before tougher federal laws took effect.

"Today's figures confirm the economic stress that businesses and consumers continue to endure. As more families and businesses seek the financial relief of bankruptcy, the filing totals are likely to surpass last year," said Samuel Gerdano, executive director of the ABI.

The reason auto dealers should keep an eye on such data is that a bankruptcy damages a customer's credit score for 10 years - three years longer than the damage sustained by falling into delinquency on a credit card. Given the heavy damage bankruptcy inflicts on a credit score for such a long time, many would-be auto buyers find themselves forced to put off purchases or, at best, to accept unfavorable interest terms.
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