January 11, 2006
Consumer bankruptcies set record in 2005: study
NEW YORK (Reuters) - U.S. consumer bankruptcies increased
to a record 2.04 million in 2005, as people rushed to seek
protection from creditors ahead of tough new laws, data
released on Wednesday show.
Filings rose 31.6 percent from 1.55 million in 2004, with
increases in every U.S. state and double-digit percentage
increases in every geographic region, according to Lundquist
Consulting Inc., a financial research firm. One in every 53
households filed for court protection, the firm said.
Chapter 7 filings, which provide the greatest relief for
consumers, surged 47.2 percent, while Chapter 13 filings
declined 7.9 percent.
The Bankruptcy Abuse Prevention and Consumer Protection
Act, which took effect October 17, made it harder to erase
debts and made filings more costly. The changes constituted the
biggest overhaul to the U.S. Bankruptcy Code since 1978.
In perhaps the biggest change, a new "means test" prevents
debtors from using Chapter 7 if they earn more than the median
income in their states, and can repay some of their debt. They
must instead use Chapter 13, which requires repayments.
Credit-card issuers championed the new law, saying old laws
Banks such as Citigroup Inc., Bank of America Corp. and
JPMorgan Chase & Co. have said they will suffer hundreds of
millions of dollars of fourth-quarter losses related to the
filing surge, but expected to make this up in future periods
because filings would decline.
There were only 38,000 consumer bankruptcy filings between
October 17 and December 31, Burlingame, California-based
Lundquist said. Nearly 60 percent of these were Chapter 13
filings, double the historical norm, it said.
California was the biggest state in 2005 volume with
164,856 filings, up 35.9 percent from 2004. Ohio was second,
with 135,142 filings, up 51.7 percent.
The Administrative Office of the U.S. Courts expects to
release 2005 filing data around March 1. The office is an
information clearinghouse for the federal court system.