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Consumer Bankruptcy and Household Debt 1 (October 22, 2009)

handle is hein.bank/crsbank0022 and id is 1 raw text is: Order Code RS20777 Updated October 22, 2008 CRS Repo for Congress Consumer Bankruptcy and Household Debt Mark Jickling Government and Finance Division Summary The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA, P.L. 109-8) included the most significant amendments to consumer bankruptcy procedures since the 1970s. The 110th Congress continues to monitor the impact of the new law on debtors and creditors. Bankruptcy reform was enacted in response to the high number of consumer bankruptcy filings, which in 2005 and 2006 reached five times the level of the early 1980s. Why did filings increase so dramatically during a period that included two of the longest economic expansions in U.S. history? Because bankruptcy is by definition a condition of excessive debt, many would expect to see 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 risen only moderately. What aggregate statistics do not show is that the debt burden does not fall equally on all families. Financial distress is common among lower-income households: in 2004, 27% of families in the bottom fifth of the income distribution spent more than 40% of their income to repay debt. This report presents statistics on bankruptcy filings, household debt, and families in financial distress, and it will be updated as new statistics become available. This report presents data on bankruptcy filings, household debt, and families in financial distress. Table 1 shows filings since 1980. Business filings peaked in 1987 and have since declined, but the number of consumer filings continued to grow through 2005. In 2005, the number of filings surpassed 2 million- there was a rush to the courthouse before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) took effect in October 2005. In 2006, filings dropped sharply, suggesting that the new law caused many to accelerate their filings, and that many petitions that would have been filed in 2006 (or later) were pushed forward by bankruptcy reform. Whether (or how much) BAPCPA will reduce filings in the long run is still unclear. Filings have risen steadily from the 2006 lows, and in the second quarter of 2008 reached 266,667, or over 1 million at an annual rate. Weakening credit market and macroeconomic conditions in could produce further increases. Congressional Research Service < The Library of Congress Prepared for Members and Committees of Congress

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