LexisNexis Bankruptcy Data: Chapter 7 Filings Again Higher Than Chapter 13; Bankruptcy Expert Suggests Return to Pre-Law Normalcy

Business Wire, April 6, 2006

DAYTON, Ohio -- First-quarter consumer bankruptcy data compiled by LexisNexis(R) CourtLink(R) reveals that since major bankruptcy changes became effective last October 17th, chapter 7 (straight bankruptcy) consumer bankruptcy filings have reassumed the lead over chapter 13 filings that require repayment of debt to creditors.

As more time is clocked from the new law, Henry J. Sommer, Esq., editor-in-chief of Collier on Bankruptcy(R), suggests the trend toward more chapter 7 filings will continue.

In Q4 2005, directly after the law went into effect, chapter 13 filings (24,656) outpaced chapter 7 filings (22,668) by 8 percent. In the first quarter of 2006, that trend did a flip-flop. By March, more than 60 percent of bankruptcy filings were chapter 7 cases (31,615) and not chapter 13 cases (19,481) for a total of 51,096 filings, more than twice as many total bankruptcies as were filed in January (25,005). As in Q1 of 2005, chapter 7 (285,535) filings were higher than chapter 13 (98,750).

"Prior to enactment of the new bankruptcy law, the proponents of the bill argued that people filing bankruptcy actually could repay their debts. These figures reflect a return to 'normalcy' in which those who file chapter 7 bankruptcy truly are bereft and without financial means to repay creditors," said Sommer. "Academic studies had found that very few debtors who filed chapter 7 cases had sufficient income to fund a chapter 13 payment plan, and it appears that the proportion of chapter 13 cases under the new law bears that out and will not be significantly higher than under the prior law. I had predicted earlier that the farther away from October 17th we get, the more chapter 7 filings we will see, and it appears that prediction is coming true."

Only nine states posted higher chapter 13 filings than chapter 7 in the first quarter of 2006, and a majority of these are from the Southeast quadrant of the U.S. "traditionally a region that posts higher chapter 13 consumer bankruptcy filings," according to Sommer.

Six states led the nation with more than 6,000 total consumer bankruptcies filed in the first quarter including: Georgia (7869); Texas (7,245); Michigan (6393); Ohio (6140); Tennessee (6074) and California (6003).

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