NCPA - National Center for Policy Analysis

The Need to Reform Bankrupcy Laws

January 7, 1997

Some are urging the National Bankruptcy Review Commission -- which Congress set up to recommend changes in the nation's bankruptcy laws -- to make such laws more stringent. They argue that lawyers are urging clients to file under Chapter 7, which allows a discharge of virtually all debt obligations -- rather than Chapter 13, which requires filers to repay at least some of their debt.

  • Only about 30 percent of personal-bankruptcy filings are made under Chapter 13, while 70 percent come under Chapter 7.
  • Filings are up 26 percent from 1995 and four times the 1980 level -- passing the one million mark last year.
  • The median debt of filers is $31,000.
  • Debt forgiveness in bankruptcies costs solvent American consumers about $100 per year per average family in the form of higher prices and interest rates.

A 1996 study by SMR Research Corporation found that total consumer debt of $6.5 trillion as of year-end 1995 consisted of $5.6 trillion in housing mortgages, $272.4 billion from credit cards, $354.4 billion in auto loans, and $280.1 billion in miscellaneous debt.

Source: Robert L. Sexton and Gary Galles (both of Pepperdine University), "Why the Rise in Bankruptcy?" Investor's Business Daily, January 7, 1997.

 

Browse more articles on Government Issues