Consumer Bankruptcy Filings: Trends and Indicators
32 Pages Posted: 20 Sep 2006
Date Written: September 2006
This paper examines consumer bankruptcy filing rates. It attempts to identify some trends and some economic indicators that might predict those filing rates. While several studies examined these questions prior to the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), there remains considerable uncertainty and debate over what economic factors correlate to consumer bankruptcy. This is the first study that takes into account the impact of BAPCPA, both in anticipation of and in the aftermath of its effective date.
1. Part I lays out the historical filing rate data following the effective date of the Bankruptcy Reform Act of 1978. Part II examines the impact of BAPCPA on filing rates, and finds that the dramatic post-BAPCPA drop in filings may be almost over. Soon, consumer bankruptcy filing rates are likely to return to their pre-BAPCPA levels. Part III then analyzes the possible correlation of numerous plausible economic data sets to non-business bankruptcy filing rates. The paper finds several such data sets that correlate to non-business filings to a high level of statistical significance. These economic indicators point to a return to pre-BAPCPA filing levels. However, those indicators also suggest that it is unlikely that consumer filings will increase much over those old levels unless fundamental underlying economic changes occur. The findings in Part III further indicate that if Congress wants to curb consumer bankruptcy filings, it needs to focus on treating root causes - such as the explosion in revolving consumer credit - rather than on symptoms. Thus, BAPCPA may have been misguided
Suggested Citation: Suggested Citation