Press Release

NEW REPORT: Bankruptcies Back on the Wrong Track


WASHINGTON, DC – The Center for American Progress released a new report, “Bankruptcies Back on the Wrong Track,” that looks at the fact that, despite the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, bankruptcy rates are on the rise again.

The report finds that the severe financial squeeze faced by America’s families today is evident in stag nant income growth amid mounting job losses and in the spiraling costs of gas, energy, food, and healthcare amid record family debt levels. The results of this squeeze, such as rising home foreclosures, credit card defaults, and automobile and other personal loan defaults, now include the ultimate financial disaster—personal bankruptcies, which are the broadest measure of economic distress and are once again on the rise.

That bankruptcy rates are back on the wrong track despite a conscious legislative effort by conservatives to force families to struggle longer with unsustainable debt obligations than they can afford speaks volumes about today’s enveloping financial squeeze. And chances are high that personal bankruptcies will increase even further given current economic trends of weak income growth, high levels of debt, and rising prices. In particular, we find from the available data that:

  • The bankruptcy rate is again comparatively high.
  • Bankruptcy rates have doubled in 16 states over the past two years and many states are rapidly catching up to pre-BAPCPA levels.
  • Since passage of the new law, bank ruptcy rates have diverged across states. States that had higher bankruptcy rates to begin with also tended to see faster growth in their bankruptcy rates.
  • State-by-state data for the past two years show that bankruptcy filings are connected to economic hardships.
  • A larger share of bankruptcy filers fall under rules that are more beneficial to creditors than to debtors.

The report concludes that to truly address the bankruptcy rate in the United States, legislators must be willing to recognize the real reasons why families file for bankruptcy and address them accordingly. This will require an overhaul of the bankruptcy code to ensure families have access to the long standing American tradition of debtors being able to start over after financial disaster. In addition, a number of other economic policy steps are needed to address the underlying causes of rising personal bankruptcies, especially very weak income growth, lack of health insurance, and lack of personal saving.


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