After last year’s record number of Chapter 7 and Chapter 13 consumer bankruptcy filings since the new bankruptcy law went into effect in 2005, it was interesting to see that the latest statistics show the number of individual bankruptcies — perhaps — beginning to trend back down. Numbers from the American Bankruptcy Institute and the National Bankruptcy Research Center indicate a 6-percent drop in consumer bankruptcies filed between January and March of this year.
The 2005 bankruptcy law, called the Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA, was intended to make it harder for people to qualify for Chapter 7 bankruptcy, which eliminates all qualifying debts. The law set up a means test that was intended to limit access to Chapter 7 to those who earned less than a certain amount and met other requirements. Others seeking bankruptcy protection would be compelled into Chapter 13, regardless of whether a repayment plan was in their best interest.
The passage of BAPCPA led to record filings in 2005, just ahead of the law taking effect. Advocates for the limitations hoped that, beyond the initial rush, Chapter 7 filings, which creditors oppose, would go down.
In the past six years, however, Chapter 7 filings had nevertheless been trending upwards. Last year, a total of 1.53 million consumer bankruptcies were filed, and the percentage of those filed under Chapter 7 rose faster than those under Chapter 13. 2010 represented the highest number of bankruptcies since the rush just before BAPCPA went into effect — there were 2.04 million personal bankruptcies filed in 2005.
In the first quarter of 2011, the total number of consumer bankruptcies filed in the U.S. dropped by 6 percent. Specifically:
340,012 consumer bankruptcies were filed between January and March of 2011, down from 363,215 during the same period of last year
The March 2011 total surged 41 percent higher than the total filed in February 2011, but was still down 3 percent from the number filed in March 2010
On a related note, the Federal Reserve announced that the amount of outstanding consumer credit debt fell from $2.57 trillion in 2009 to $2.41 trillion in 2011, which indicates either that more Americans are paying down their credit card debt or that they have been discharging it in bankruptcy.
Source: Westlaw News & Insight, “U.S. consumer bankruptcies down 6 percent in Q1,” Jonathan Stempel, April 4, 2011