NCPA - National Center for Policy Analysis

Startling Bankruptcy Rates

January 15, 1998

Economists are trying to solve the seeming anomaly of record bankruptcy filings at a time when the economy and the stock market are booming and unemployment is at its lowest rate in many years.

  • Personal bankruptcy filings reached a record 1,335,053 last year -- one-fifth more than the previous year and three times higher than in 1980.
  • Astonishingly, filings during the 1990s have been running at a clip nearly eight times greater than during the Depression Era 1930s, according to the American Bankruptcy Institute.
  • In 95 percent of all Chapter 7 cases -- sometimes called straight bankruptcy -- no assets are liquidated, according to a Visa USA Inc. representative.
  • Bankruptcy costs are estimated at $40 billion a year -- an amount passed along to responsible consumers often in the form of higher interest rates and finance fees.

Hopes for quick reform of the nation's bankruptcy laws faded after a national bankruptcy commission issued a widely criticized report in October. However, alternatives are before Congress which reform advocates hope will soon be seriously considered.

One, H.R. 2500, offered by Reps. Bill McCollum (R-Fla.) and Rick Boucher (D-Va.) would set up a means-tested bankruptcy system. Debtors filing for bankruptcy would have to start paying debts if specific criteria are met.

Source: Editorial, "Debtors' Delight," Investor's Business Daily, January 15, 1998.


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