Bankruptcy News

Personal Bankruptcy Filings Doubled In Last Decade As Consumer Debt Reached Record Levels

There was one bankruptcy filed for every 73 U.S. households during calendar year 2003, up 97 percent from the 144 U.S. households per bankruptcy filing in 1993, according to the American Bankruptcy Institute (ABI). Personal bankruptcies peaked in 2003, when a record 1,625,208 cases were filed, nearly double the 812,898 filings in 1993.

The 99 percent increase in personal bankruptcy filings in the last decade is consistent with the growth in consumer debt. Data from the Federal Reserve indicates that household debt, at $8.9 trillion last year, is at a record high relative to disposable income. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated.As the Federal Reserve Board prepares to raise short-term interest rates from their 46-year low of 1 percent, consumer debt could become more costly, further burdening household balance sheets.

The influence of total consumer debt on bankruptcy filings is illustrated in the following chart, http://www.abiworld.org/statcharts/CDebt.pdf, released today by ABI. Rising consumer debt typically forecasts an increase in bankruptcies, while a decline usually results in a slowing of the rate of filings, or even a net decline in new bankruptcies.

"The U.S. economy relies primarily on consumer spending, but rising levels of household debt can put a heavy burden on families," said Samuel J. Gerdano, Executive Director of the ABI. "When families sustain an unexpected financial setback on top of this burden, they often resort to bankruptcy as a way out," he said. "Naturally, consumer bankruptcies were filed during 2003 at a rate of 185 per hour."

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	Did You Know?
	Special purpose entities in bankruptcy can be used A business, usually a special-purpose entity, established to perform limited functions and to have one or a few primary creditors. This type of entity is sometimes established to protect lenders on large, complex projects, when the lender is to be paid solely or almost exclusively out of the money generated when the project becomes operational.