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Reasons for Bankruptcies? They're Not What You Think

NEW YORK (TheStreet) -- Consumer bankruptcy cases are flattening out, with 272,926 cases closed by Courts through March 31 after 1.2 million filings in all of 2012.

The data isn't set for all of 2013 yet, with presumably hundreds of thousands of foreclosures snaking their way through the court system, but the trend is decidedly weaker these days on personal bankruptcies.

Some sources estimate that when the numbers are locked in, total consumer bankruptcies will amount to 1 million. That would be the lowest since 2008, just as the economic tsunami was descending on the U.S.

Economists largely blame household financial collapse on big-ticket, high-cost medical issues, which act to obliterate a consumer's personal "bottom line" liquidity and savings. But the prime factors that drive the bankruptcies of average Americans may not be what the experts think, according to The Center For Consumer Recovery, a Tulsa, Okla., nonprofit that helps consumers deal with debt problems.

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It points to:

Excessive litigation: It's not doctors and hospitals that bill consumers into insolvency -- it's lawyers. The center says that 78% of bankruptcy filers it spoke to (more than 3,000, for this study) said the "filing of litigation" was the "last straw" pushing them into bankruptcy, while only 4% said it was the "volume of debt" that pushed them into financial peril.

Debt buyers: Another under-the-radar driver of bankruptcies is third-party "debt buyers," who purchase old debt from banks, paying pennies on the dollar in many cases, then go after the consumers who owe. The CCR says 74% of bankruptcy filings submitted to court during the study's research period were actually filed by these buyers. (Note: debt buyers aren't debt collectors, which accounted for 24% of all bankruptcy filings, according to the CCR study.

Credit card debt: The overuse of plastic seems to be really hurting Americans struggling with debt. "The single largest category of debt reported was credit card debt, reflecting 72% of the total," the study reports. "The next largest category was medical debt at only 21%."

If creditors were to accurately tap into the real reasons behind consumer bankruptcies, we might see fewer such cases on courtroom dockets.

"The survey results were consistent with our recent anecdotal observations and we had been thinking for some time that earlier studies may no longer be valid," says Bill Bartmann, founder of the center.  "It certainly appears that a combination of continued unemployment and the growing aggressiveness of creditors who file debt collection litigation has become the major drivers of consumer bankruptcy."

"This may be a signal to creditors to re-evaluate their policy," he adds.

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