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Consumer bankruptcies decline for 7th month

/ Source: Reuters

U.S. consumer bankruptcy filings fell 18 percent in July, the seventh year-over-year decline in 2011, and they are expected to stay in check as people try not to overextend themselves in a weak economy.

Filings fell to 113,570 in July from 137,698 a year earlier, and were down 5 percent from 119,768 in June, the American Bankruptcy Institute said, citing data from the National Bankruptcy Research Center.

ABI Executive Director Samuel Gerdano said Tuesday he expected bankruptcy filings to total about 1.4 million this year, down from a five-year high of 1.53 million in 2010.

"We won't see a spike in bankruptcies until we see a sustained rise in consumer spending driving the economy," he said in an interview.

"The decline is further evidence that consumers are deleveraging, as if they were on strike, and are worried about their economic futures."

U.S. consumer spending fell 0.2 percent in June, the first decline since September 2009, the Commerce Department said Tuesday.

While the unemployment rate is 9.2 percent, a broader measure of unemployment that includes discouraged workers and people working part-time for economic reasons is 16.2 percent, seasonally adjusted, Labor Department data show.

Economists expect a report on Friday to show that the economy added just 85,000 non-farm jobs in July.

"Delinquencies on credit tend to mirror the unemployment rate, and as long as that rate remains high, we will have challenges," said Curtis Arnold, founder of in Little Rock, Arkansas.

Gerdano said there was typically a 12- to 18-month lag between declines in consumer spending and bankruptcy levels.

Consumer bankruptcy filings peaked at 2.04 million in 2005, when there was a rush to file ahead of new bankruptcy laws.

"It's a little bit confounding that the numbers are down, given that consumer financial conditions are degrading," said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

"More people are calling us for help, but we're able to help fewer of them because many of their situations are already so far gone."