Consumer bankruptcy filings soared 15.1 percent during the 12 months ended in March, raising fresh concerns about the strength of the U.S. economic recovery.
"The consumer sector is extremely leveraged," said Paul Kasriel, chief economist with Northern Trust Co. in Chicago. "I think it's one of the reasons that the (Federal Reserve) is reluctant to raise interest rates. It might not take all that much in the way of rate increases to push the consumer over the edge and tip the economy back into a recession again."
Personal bankruptcy filings totaled 1.5 million for the year ended March 31, the Administrative Office of the U.S. Courts reported. Filings by businesses rose 10.7 percent to 39,845 during the same period.
Normally, consumers shed debt and cut personal spending when the economy begins to falter. However, low home mortgage rates and no-interest deals on auto loans spurred individuals to maintain strong spending levels throughout last year's downturn, said Samuel J. Gerdano, executive director of The American Bankruptcy Institute in Alexandria, Va.
Consumer spending accounts for about two-thirds of economic growth, so this strong spending -- which continued in April according to the latest government figures -- has helped pull the United States out of its economic slump. But it also has put millions of consumers on the edge -- easily toppled by financial upsets ranging from job losses to divorce.
"As usual, consumers have done more than their share to pull the economy out of what turned out to be a very small ditch," said Gerdano. "But bankruptcy is kitchen-table-to-kitchen-table economics.
"If you have lost your job, lost your medical insurance and you are getting calls from creditors every night, you are going to file bankruptcy."
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