New numbers released by the American Bankruptcy Institute show that the number of American consumers filing for bankruptcy reached a five-year high in 2010. The data, compiled by the National Bankruptcy Research Center, showed that around 1.53 million people filed consumer bankruptcy petitions last year — up 9 percent from 2009.

At the same time, the Federal Reserve says that the rate of outstanding credit card debt has fallen for 19 of the last 21 months. The total of all outstanding credit card debt held by U.S. consumers was $2.41 trillion in October 2010, down from $2.57 trillion in January 2009.

So if the level of unmanageable credit card debt is going down, why have consumer bankruptcy rates gone up?

The nationwide trend toward lower credit card debt among consumers has been widely publicized. Samuel Gerdano, executive director of the American Bankruptcy Institute, acknowledges that consumers have worked hard to cut their spending and reduce their debts since the Great Recession began. However, he says that there is usually a lag time of 12 to 18 months between a decline in consumer spending and a decline in bankruptcy filings.

Unemployment rates hovering around 10 percent or higher, the foreclosure crisis, and an epidemic of medical debt, however, could counteract any reductions in bankruptcy rates caused by lowering credit card debt rates.

2010 Bankruptcy Rate Highest Since 2005 Bankruptcy Law Introduced

The numbers from the American Bankruptcy Institute also show that 2010 had the highest full-year total of bankruptcies since 2005, when a total 2.04 million consumers rushed to file bankruptcies before the strict new provisions of the 2005 bankruptcy law took effect.

Additionally, the two-year period of 2009 and 2010 was record breaking. 2.94 million people filed for consumer bankruptcy in the U.S. over that period — the highest two-year number since the 2004-2005 period.

“The (2005) law was supposed to reduce filings, but we are very close to levels we were at then,” Gerdano said. “The laws of economic gravity are more powerful than the laws passed by Congress.”

Source: Westlaw News & Insight, “U.S. consumer bankruptcies hit 5-year high in 2010,” Jonathan Stempel, January 3, 2011