Drilling Down on Consumer Bankruptcy

When bankruptcy laws were changed in 2005, the precipitous drop in filings by consumers was an expected, and intended, byproduct. But a couple of recent reports indicate that consumers are once again exploring end-arounds to the newly-emboldened policies. The new law made it tougher for consumers to file Chapter 7 bankruptcy that allowed them to discharge most of their debts. Instead, more filers were sent into Chapter 13 bankruptcy where the consumer was required to enter a three-year to five-year debt repayment plan, and had requirements that made filing much more difficult.

But the Administrative Office of the U.S. Courts reported last month that bankruptcy filings rose 66 percent in the first quarter of 2007, suggesting the beginning of a return to filing totals that were set before Congress changed bankruptcy laws nearly two years ago.

There were 193,641 bankruptcy filings in the first quarter, up from 116,771 filings in the same period a year ago, and the highest number of any quarter in the 12-month period ending March 31. Filings for the entire 12-month period did, however, remain way down from the record numbers that were set as Congress endlessly debated, then passed new bankruptcy laws that took effect in October, 2005.

For the four quarters ending March 31, 2007, there were 695,575 filings, down 61 percent from the four quarter period ending March 31, 2006 when there were 1,794,795 filings, the Administrative Office reported. The filings this year included 673,615 non-business filings and 21,960 business filings. The number of non-business filings was down 62 percent from the previous four-quarter period while the business filings were down 38 percent. Chapter 7 filings for the 12 months ending March 31 fell 71 percent to 413,294 from 1,432,074 in the 12-month period ending March 31, 2006. There were 276,649 Chapter 13 filings during the year ending March 31, down 22 percent from 355,756 in the same period a year ago. There were 5,199 Chapter 11 filings for the year ending March 31, down 20 percent from the same period a year ago.

Adding to the report on raw bankruptcy numbers from the Administrative Office of the U.S. Courts was the release of another study that explored the demographics of those that filed for bankruptcy in 2006.