By Mike Colpitts
Consumer bankruptcy filings declined through the latter half of 2011 and have now reached pre-recession levels, indicating a positive sign 
for the U.S. economy, according to credit report bureau Equifax. The drop in bankruptcy petitions paralleled a similar decline in foreclosures.
Consumer and commercial bankruptcies dropped steadily from the second quarter of the year. Commercial filings dropped 28% through the final quarter of 2011, while consumer filings fell 22%. Mortgage holders in default of their home loans often have little reason to file bankruptcy, since in most cases, courts rule in favor of the lender to foreclose on a home mortgage, despite bankruptcy filings.
“Our latest analysis of bankruptcy rates appears to show some signs of stabilization,” said Equifax vice president Reza Barazesh. “The downward trend in the number of bankruptcies is an indication of the improvement in economic conditions.”
“The belt tightening in the commercial small business sector resulted in a decline in business failures and speaks to the improving health of today’s small business market,” said Barazesh.
Foreclosure auctions were scheduled on 86,037 residential U.S. properties in January, 20% below year ago levels. A pattern of increasing foreclosures, however, is expected to result in coming months as lenders pick-up speed to formally repossess homes after finalizing an agreement with 49 state attorneys general over the robo-signing scandal.
“Although overall foreclosure activity was down from a year ago for the 16 th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said RealtyTrac CEO Brandon Moore. “Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania.
“The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year,” said Moore.
“Other roadblocks to foreclosure are still in place at the state level, however, including legislation altering the foreclosure process and lawsuits against lenders. We expect to see somewhat uneven trends in local and regional foreclosure numbers going forward as lenders work through these additional legislative and legal roadblocks.”