As the economy has continued to challenge us more each year, many people have been faced with some hard truths. Personal debt burdens have reached all time highs, people are losing their homes to foreclosure more than ever before and much of this has been reflected in bankruptcy filing patterns over the last decade.
Ups And Downs
Taking a look back to the year 2001, bankruptcy statistics reveal a fairly steady pattern as years prior. The average number of Chapter 13 filings for the nation were slightly less than 500,000 for the year and slightly above 1,000,000 for Chapter 7 cases. This trend continued for the next four years until a large spike in Chapter 7 filings was observed in late 2004 to early 2005, hitting over 1.6 million filings for the year. Interestingly, Chapter 7 filings dropped significantly in 2006 to less than 500,000 filings, with a slight drop in chapter 13 filings the same year.
Why such a huge increase in Chapter 7 filings in 2004-2005 followed by a huge drop in 2006? Some significant changes were made to bankruptcy laws in 2005, which essentially made it more difficult for debtors to qualify for Chapter 7. The changes were meant to prevent abuse of the system and further eliminate those with the financial means of repaying their debts from obtaining a debt elimination discharge in Chapter 7. Two of the most notable changes required that debtors filing for Chapter 7 pass a means test and attend a credit counseling course.
These changes essentially disqualified many debtors, leaving them with the option to file for Chapter 13 instead. Following the bankruptcy law changes in 2005, the number of Chapter 13 filings began to rise again to return to around 500,00 and Chapter 7 cases slowly rose to over 100,000 by the year 2010. The biggest difference in these filing numbers and those seen back in the early 2000’s is that economic pressures have pushed many into legitimate qualifications for Chapter 7 even with the stricter standards from the 2005 law changes.