New numbers from the American Bankruptcy Institute indicate that personal bankruptcy filings for 2010 have reached their highest level since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
Here’s a look at how many of us have turned to bankruptcy protection and why that number is important.
Yearly Filings Expected to Exceed Two Million
The recession, it seems, has taken a financial toll on many American households. Consider these numbers, reported by the ABI:
- In the first half of 2010, personal bankruptcy filings totaled 770,117, a 14 percent increase over the same period in 2009.
- While June filings were down for the third straight month (at 127,000, a seven percent dip from May), they marked an eight percent increase from June 2009.
- Sources have found that the U.S. is averaging 6,800 bankruptcy filings per million households, and that number is much higher in the hardest hit areas.
- Some analysts are reportedly estimating another 1.6 million filing for the year, which would bring 2010’s total to more than 2.3 million filings.
So what does all this have to do with BAPCPA, which took effect about five years ago?
The “New” Law and Its Effects
The bankruptcy reform law passed in 2005 was designed to curb “bankruptcy abuse,” or the practice of filing for bankruptcy to discharge debts accrued in an “irresponsible” manner. The credit card industry, which spent tens of millions of dollars lobbying for BAPCPA to pass, promoted the myth that “deadbeat” Americans often ran up debts they couldn’t pay, with the explicit intention of filing for bankruptcy to have them discharged.
In fact, most sources estimated the number of fraudulent bankruptcy cases at a mere two percent before the law passed. In practice, one of BAPCPA’s most significant contributions to the bankruptcy system was to make it more difficult and more expensive for people to file. Here’s what happened:
- Fearing they wouldn’t qualify for bankruptcy protection with BAPCPA’s restrictions in place, Americans rushed to file for bankruptcy before BAPCPA took effect in October 2005.
- The pre-BAPCPA rush meant that bankruptcy filings were pretty low in the months following the law’s passage; supporters of the law advertised this as proof of its effectiveness.
- Since the economy has soured and the pool of potential bankruptcy filers has normalized somewhat, more Americans have begun to file for bankruptcy.
- Now, bankruptcy filings are approaching pre-BAPCPA levels, suggesting the law was not the “cure-all” some claimed.
It will be interesting to see what, if any, changes are made to bankruptcy practice in the future, in light of this information.
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