Personal Bankruptcy Statistics

Personal bankruptcy statistics have been trending upwards over the last few years as the global economic crisis has pressed more and more individuals towards this desperate option.

Although the economy seems to be improving ever so slowly, this has not yet led to any real reduction in the number of bankruptcy filings. It seems it takes some time for relevant financial processes to filter down to individuals.

Overall Bankruptcy Filing Statistics

In March 2010, personal bankruptcy levels in the United States peaked at a new high since the bankruptcy code changes that took place in 2005. Personal bankruptcy statistics show filings peaked in 2005 at around 630,000, just before changes to the law took effect.

Statistics showed a sharp decline in the overall number of bankruptcy filings following the introduction of the new legislation in 2005. This was followed by a slow rise in filing rates until April of 2010 when a 3% decline from the previous month was noted.

According to the American Bankruptcy Institute, total personal bankruptcy filings in 2009 topped out at 1,412,838. This means that close to 96% of total filings were made by individual consumers, rather than businesses.

Chapter 7 bankruptcy filings were up from 60% of all filings in 2008 to 71% in 2009. This means that more people have been vying for the option that allows them to cancel all debts, rather than restructuring debts in an attempt to avoid foreclosure on a home (typically the scenario with Chapter 13 bankruptcy filings).

Causes of High Bankruptcy Rates

There are many factors that contribute to the rise in bankruptcy filings, so it is difficult to name one or two central issues that contribute to the problem. A related combination of issues seems to contribute to the rate of filing. For instance, with profits declining across many sectors of business, some firms have looked to downsize and lay off large numbers of employees.

This has led to higher rates of unemployment, which in turn leads to more unpaid bills and missed mortgage payments. Many people, when faced with a stack of bills and a sudden loss of income have little choice but to file for bankruptcy.

In fact, the statistics indicate that around two-thirds of bankruptcy filers have recently lost their job. Other big contributing factors are recent divorces and serious medical issues resulting in large bills.

Conflicting studies have put the proportion of people filing bankruptcy because of medical issues or large medical bills at just over half of all bankruptcy filings. The conflicting data covering the statistics have been a cause for tension in debates surrounding the introduction of government-funded healthcare in the US.

Bankruptcy Law Change

In 2005 the U.S. Government passed legislation that made it more difficult for the average person to file for bankruptcy. This came at a point when the number of Chapter 7 bankruptcy filings were skyrocketing.

The law changes have meant that it is now compulsory for anyone attempting to file for bankruptcy to first undergo credit counselling. The government also attempted to stem the tide of Chapter 7 filings by creating new restrictions on who can file under Chapter 7 based on income.

Essentially, if your monthly income is greater than the median income for your state and you can pay $100 or more towards your debt each month, you have an obligation to file under Chapter 13.

The theory behind this change was to force more people to take action that would let them keep their homes, reducing other relevant social problems. All this doesn’t seem to have worked very well when one considers the state of the housing market and general economy in the U.S. and world today.