Bankruptcies again on the rise

USA Today (Society for the Advancement of Education), May, 2008

On the eve of the three-year anniversary of Pres. George W. Bush's controversial bankruptcy bill becoming law, data indicates that, in the last two years, nearly 1,500,000 individuals have filed for personal bankruptcy. The data further questions the merits of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Supporters of the bill argued that BAPCPA would decrease the number of bankruptcy filings significantly by eliminating those who were declaring 'bankruptcies of convenience." Opponents asserted that BAPCPA would lower the number of bankruptcy fliers in the short term only, as the increased costs and complexity of filing for bankruptcy under the new law would cause financially struggling families to delay filing.

Opponents of the bill proved prescient. After a sharp increase in the number of bankruptcy filings leading up to Oct. 17, 2005 (the date the law took effect), followed by a dramatic dropoff immediately following this deadline, filing rates have continued to climb--and, if statistics since enactment of BAPCPA are any guide, including numbers released by the courts, this upward trend will not abate.

The numbers are stark: By the end of the fourth quarter of 2007, the national Chapter 7 bankruptcy rate had reached 1.7 filings per 1,000 people, which is a 95.8% increase from the 0.9 filings per 1,000 people at the end of the first quarter of 2006, the first complete quarter after BAPCPA took effect. Similarly, the national Chapter 13 bankruptcy rate stood at 1.1 filings per 1,000 people in the fourth quarter of 2007, a 62.2% increase from 0.7 filings per 1,000 people in the first quarter of 2006.

Chapter 7 is known as "liquidation" or "straight" bankruptcy and used primarily by individuals who want to free themselves totally of debt. Businesses also utilize it to liquidate and terminate their company. Chapter 13 is employed by a person with a regular income who is overcome by debts, but believes they can be repaid in full or part within a reasonable period of time.