New data from the Administrative Office of U.S. Courts, released yesterday, shows nearly 362,000 personal bankruptcies were filed in the second quarter, bringing the year-to-date total to more than 715,000. A record 1.38 million personal bankruptcies were filed during the twelve month period ending June 30, representing a 9% growth rate over the previous year. The Bankruptcy Issues Council said yesterday it expects the Senate to move on bankruptcy reform after the August recess and before Congress adjourns in October.
A record number of Americans filed for bankruptcy during the second quarter of this year, indicating that the need for bankruptcy reform is greater than ever, the Bankruptcy Issues Council said today. The coalition urged the Senate, which is expected to consider reform legislation soon after the August recess, to move quickly to ensure that meaningful reform is enacted before Congress adjourns in October.
According to new data from the Administrative Office of the U.S. Courts, there were 373,460 bankruptcy filings between April 1 and June 30 of this year. Nearly 362,000 of those filings were personal bankruptcies, and about 11,500 were businesses. The total filings and the number of personal bankruptcies both represent all-time records for one quarter. Nearly 1.38 million personal bankruptcy petitions were filed during the 12 months ending on June 30, more than any other 12-month period in history and an increase of more than 9 percent over the previous year.
“These numbers provide irrefutable evidence that the bankruptcy problem is getting worse,” said a statement by the BIC, which includes MasterCard, Visa and several of their member banks. “It is critical that Congress act to correct the flaws in our bankruptcy laws that are leading to this record number of filings. Our system allows too many higher-income Americans to walk away from debts that they could afford to repay, leaving consumers who pay their bills on time to pick up the tab.”
Bankruptcy reform legislation passed the House of Representatives by an overwhelming bipartisan margin of 308-116 in June. Senate Majority Leader Trent Lott (R-Miss.) said the Senate will take up its version of the bill, which the Judiciary Committee approved on a 16-2 vote, in early September.
“Both bills correct the fundamental flaw in our bankruptcy code, which is that current allows wealthier filers to walk away from debts they could afford to repay,” the BIC stated. “Studies show that a significant percentage of higher-income filers could repay some of their obligations but choose to erase those debts by filing for Chapter 7. The pending bills seek to ensure that filers who could repay some of what they owe are required to do so by filing a repayment plan under Chapter 13.”
The House passed bill would create an up-front “needs-based” test, which takes into account a debtor’s income, obligations and living expenses to determine exactly how much debt relief he or she needs. Individuals in the most serious financial difficulty would continue to be granted complete relief from their debts and an opportunity for a fresh start, just as they are now. But higher-income individuals who have enough income to repay some of what they owe would be required to do so. The Senate bill has similar goals, but would require the courts to determine whether an individual should repay some of his or her obligations.
“It is clear that the explosion of personal bankruptcies is a trend that is not just going to go away,” the BIC said in its statement. “Congress needs to move quickly to pass a strong bill and the President should sign it into law at the earliest opportunity. It’s time to restore personal responsibility and fairness to a bankruptcy system gone haywire.”