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Consumer Bankruptcy and Household Debt 1 (February 8, 2002)

handle is hein.bank/crsbank0017 and id is 1 raw text is: Order Code RS20777 Updated February 8, 2002 Consumer Bankruptcy and Household Debt Mark Jickling Specialist in Public Finance Government and Finance Division Summary The 107' Congress is considering legislation (H.R. 333, S. 220) 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 have been running at nearly four times the levels 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 debt statistics do not show is that there has been an increase in the percentage of families in financial distress (those spending more than 40% of their incomes on debt service). Financial distress is most common among lower-income families, but its incidence has grown in all income brackets. This trend 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 households in financial distress, and will be updated as new statistics become available. For discussion of bankruptcy reform proposals, see CRS Report RL30865, Bankruptcy Reform Legislation in the 107th Congress. 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 continued to grow through the 1990s. Consumer bankruptcies exhibit a pattern of rapid annual growth for several years, a 2- or 3-year pause, and a resumption of growth. The most recent pause began in 1999 and continued through the end of 2000: there were 13% fewer filings in 2000 than in 1998. In the first three quarters of 2001, however, consumer bankruptcies were up 210% over the previous year. If filings continue at that level throughout the year, the annual total for 2001 will exceed 1998's record number. Congressional Research Service °0° The Library of Congress CRS Report for Congress Received through the CRS Web

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