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1 (March 21, 2005)

handle is hein.crs/crsmthabafj0001 and id is 1 raw text is: Order Code RS20777 Updated March 21,2005 CRS Report for Congress Received through the CRS Web Consumer Bankruptcy and Household Debt Mark Jickling Specialist in Public Finance Government and Finance Division Summary On March 10, 2005, the Senate passed bankruptcy reform legislation (S. 256) that would require some consumer bankruptcy petitioners to repay certain debts rather than have them discharged, or erased, by the bankruptcy court. The principal impetus behind bankruptcy reform is the high number of consumer bankruptcy filings, which in recent years has been running at five times the level of the early 1980s. It is not clear why bankruptcy filings have increased so dramatically during a period that has included two of the longest economic expansions in U.S. history. Since bankruptcy is almost by definition a condition of excessive debt, many would expect to observe a corresponding increase in the debt burden of U.S. households over the same period. However, while household debt has indeed grown, debt costs as a percentage of income have been fairly constant over the past two decades. What these aggregate statistics do not show is that the debt burden does not fall equally on all families. Financial distress is most common among lower-income households: in 2001, 27% of families in the bottom fifth of the income distribution had debt service obligations that exceeded 40% of their incomes. This suggests that explanations for the rise in consumer bankruptcy filings are more likely to be found in micro-analysis of individuals and groups of debtors than in macroeconomic indicators. This report presents statistics on bankruptcy filings, household debt, and families in financial distress, and will be updated as new statistics become available. For discussion of bankruptcy reform proposals, see CRS Report RL31706, Bankruptcy Reform: A Recap. The tables below present data on bankruptcy filings, household debt, and families in financial distress. Table 1 shows bankruptcy filings since 1980. Both business and non-business bankruptcies showed increases in the early 1980s, but business filings peaked in 1987 and have since declined, while the number of consumer filings has continued to grow. Consumer bankruptcies exhibit a pattern of rapid annual growth for several years, a two- or three-year pause, and a resumption of growth. In each calendar year from 2001 through 2003, number of consumer bankruptcy filings set a new record. In 2004, however, the number of filings declined by 3.8% from the previous year. Congressional Research Service + The Library of Congress

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