Less Individuals File Bankruptcy in 2006

On Tuesday, The American Bankruptcy Institute released filing statistics for the 2006 calendar year. The total number of bankruptcy filings in 2006 was down 71 percent, to 618,000 bankruptcy filings, from a record high in of 2.1 million filings in 2005. Bankruptcy filings were the lowest since 1980. States showing significant declines in bankruptcy filings include Louisiana , West Virginia , and Oklahoma .

This dramatic decrease comes as no surprise and is largely due to the sudden surge in filings seen leading up to the enactment of the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BACPA) and the rush to file before BACPA was enacted.

There is always a percentage of the population that needs a bankruptcy and are effectively insolvent, but don’t actually file for bankruptcy protection until a triggering even leaves them with no other viable options. Typically, filing bankruptcy is triggered by some form of collection activity, such as harassing phone calls, foreclosure, repossession, garnishment, or law suits. However, the bankruptcy law change in 2005 acted as a trigger for the thousands of people who were on-the-fence and were motivated to file bankruptcy before the uncertainty of the new bankruptcy laws. This explains a large part of why 2006 filings were down so dramatically, and I’d expect them to gradually rise as the amount of people who need a bankruptcy increases. The recent increase in foreclosures and the rising use of consumer credit are expected to further contribute to an increase in bankruptcy filings for 2007.

Bankruptcy Filings for 2006 were at their highest in the fourth quarter and are increased each quarter, with a further increase expected for first quarter 2007.

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