Personal bankruptcies are down, money woes have eased — for now

The degree to which U.S. consumers’ financial health got a boost from the pandemic relief efforts is coming into focus. The looming question is what will happen next.

The average consumer’s financial well-being improved between June 2019 and June 2020, as fewer people reported difficulty paying their bills, and subjective levels of financial well-being rose, the Consumer Financial Protection Bureau said Friday.

Meanwhile, bankruptcy filings tumbled 38% to 473,349 for the 12-month period ended on March 31, the Administrative Office of the U.S. Courts said Monday.

The two reports highlighted the positive impact from government payments, forbearance programs and decreased consumer spending over the past 14 months. But the CFPB noted that much of the decline in spending meant that people had cut way back on things like visiting family and vacations.

“An overall improvement in financial status does not imply more general improvement in consumers’ lives, especially against the tragedy of so much illness and death,” the bureau wrote.

The findings jibe with other recent data, including quarterly earnings reports from banks that have shown robust consumer credit quality. Some 96.8% of U.S. consumer debt was current in the fourth quarter of last year, its highest level in more than 17 years, according to data from the Federal Reserve Bank of New York.

But it’s not clear how long the positive trends will sustain themselves as government relief efforts wind down and moratoriums on evictions and foreclosures end. Bankers have offered differing views on when charge-offs are likely to peak, and at what level.

The CFPB reached its conclusions by examining credit bureau data and surveying approximately 1,700 consumers. It calculated consumers’ Financial Well-Being Score, a metric the agency developed in 2015 that asks respondents a range of subjective questions about their financial lives and then generates a score between 0 and 100.

While that score had generally remained steady over time, the CFPB said it ticked up by one point to 52.1 in June 2020. A one-point increase is associated with an age increase of five years, a credit score increase of 20 points or a household income increase of about $15,000, according to the bureau.

Those respondents who said they had money left over at the end of the month rose by 3.9 percentage points to 46.6%, while people who contended that finances were controlling their lives fell by 8 percentage points to 32.7%.

The bureau also found that consumers under the age of 40 reported a substantially greater increase in their financial well-being than those over 62, though older consumers still had much higher financial well-being scores.

While some consumers’ financial health declined, forbearance programs helped newly unemployed Americans to avoid delinquencies, thereby preventing a hit to their credit score.

The bankruptcy data showed a similar story.

In the four years before the pandemic, the number of U.S. bankruptcy filings, including those filed by both consumers and businesses, never fell below 750,000. But between April 1, 2020 and the same period a year later, it plunged to 473,000. Business bankruptcy filings fell by 13.9%.

The federal court system attributed the bankruptcy trends to several factors, including depressed spending, moratoria on evictions and foreclosures, and courtrooms being closed to in-person business.