December 30, 2009

By:  Shaun Ertischek, Esq.

After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) took effect in October 2005, bankruptcy filings dropped dramatically from an all-time high of 1,782,643 filings in the 12-month period ending September 30, 2005.  (http://www.uscourts.gov/bnkrpctystats/bankrupt_ftable_sep2006.xls)  Approximately 4 years later, we have seen a steady increase of filings to the pre-BAPCPA levels.

“During calendar year 2008, nearly 1.1 million bankruptcy petitions were filed by individuals with predominantly nonbusiness debt, an increase of 32 percent over the number of filings in calendar year 2007.”  (Administrative Office of the United States Courts. 2008 Report of Statistics Required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Washington, D.C.: U.S. Government Printing Office, 2009.)

During the 12-month period ending September 30, 2008, the total number of bankruptcy filings increased 30.2% from the previous 12-month period.  (http://www.uscourts.gov/Press_Releases/2008/bankrupt_ftable_sep2008.xls)

During the 12-month period ending September 30, 2009, the total number of bankruptcy filings increased 34.5% to 1,402,816 from 1,042,806 during the previous 12-month period.  (http://www.uscourts.gov/Press_Releases/2009/0909_f.xls)

Bankruptcy filings are a trailing indicator of economic distress as people tend to resort to filing for bankruptcy only after defaulting on loans and, oftentimes, after creditors have taken legal action.  Given the levels of unemployment and mortgage foreclosures, it is anticipated that bankruptcy filings will only continue to increase as people exhaust their savings, credit card companies commence lawsuits, and foreclosure sales are finalized.

The bankruptcy abuses that BAPCPA sought to curtail are less relevant in the current economy.  The recession is placing consumers in great economic distress, which is likely to send consumer bankruptcies to a new all-time high in the near future.