Consumer Bankruptcy Filings for 2005 Are Highest on Record

Lundquist Consulting, Inc., industry leader in bankruptcy statistics and analytics, releases findings that 2005 consumer bankruptcy filings numbered over 2 million, up 31.6 percent from 2004, representing the highest number of filings on record. 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.

Consumer bankruptcy filings for 2005 were 2,043,535, up from 1,552,967 in 2004. On an annualized basis, 1 in every 53 households filed bankruptcy. (Household numbers are based on 2005 estimates by the US Census.) 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.

Chris Lundquist, Founder of Lundquist Consulting, Inc., has over 15 years of experience in the bankruptcy industry, publishing high quality statistics and performing qualitative and quantitative studies on the subject. Lundquist Consulting statistics are quoted in research papers and media articles as well as used by government entities for policy planning and legislative support papers. Regarding the increase in 2005 filings, Mr. Lundquist stated, “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. 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 17th 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.

All regions showed a significant increase in growth of filings for 2005. The South (East) showed the smallest growth in filings at 17.6 percent, whereas the greatest increase was seen in the North Central (East) at 43.2 percent. The rise in filings in North Central (East) was driven by Ohio, which increased 51.7 percent in 2005 and was ranked the second highest state in filing volume at 135,142. The largest number of filings was found in California at 164,856, a growth of 35.9 percent from 2004. The lowest filing growth was seen in South Carolina at 1.2 percent. For Regional definitions, please visit our site at www.nbkrc.com/regionaldef.html.

Bankruptcy trends, statistics and analytics are updated weekly and available through the National Bankruptcy Research Center (NBKRC), a product offered by Lundquist Consulting, Inc. to clients on a subscription basis.