Bankruptcy Filings Hit Record
Jan. 13, 2006Consumer bankruptcy filings in 2005 numbered over 2 million, up 31.6 percent from 2004, representing the highest number of filings on record, according to Lundquist Consulting Inc., a bankrupcy analysis firm.
The dramatic surge in filings coincided with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S. 256), which was enacted on October 17, 2005.
On an annualized basis, one in every 53 households filed bankruptcy. Chapter 7 consumer filings, providing consumers with the greatest relief of their debts, increased 47.2 percent in 2005. Chapter 13 consumer filings, requiring consumers to repay a part of their debts, declined 7.9 percent.
"The number of consumers seeking relief of their debts through bankruptcy was at an all time high in 2005; however, since the new law went into effect on October 17, relatively few consumers have used the new bankruptcy system," said Chris Lundquist, founder of Lundquist Consulting. "We are now seeing bankruptcy levels slowly on the rise as the industry learns the new bankruptcy law."
The total number of filings since the enactment of the legislation, on October 17, through December 31 was just over 38,000, representing fewer than 2.0 percent of all 2005 filings. Low filing numbers since the law's enactment can be correlated to the fact that many consumers filed earlier than they might have otherwise to take advantage of the old bankruptcy law.
Since the enactment, the proportion of consumers filing Chapter 13 as compared to Chapter 7 has increased. Nearly 60 percent of all filings since October 17 have been filed as Chapter 13, as compared to about 30 percent historically under the old law. The new law requires consumers to be subjected to a "means test," requiring them to file Chapter 13 unless they meet certain debt and income requirements.2006 SmartPros Ltd. All rights reserved.