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Consumer Bankruptcy Filing Trends:   The Year Ahead

January 6, 2005, Alexandria, Va. — The bankruptcy filing rate, which declined last year for the first time since 2000, will likely remain flat or continue to decline during the last quarter of 2004, but may turn up again in the first quarter of 2005, based on trends in consumer debt levels, credit card default rates, according to data analyzed by the American Bankruptcy Institute (ABI). Three variables published by the Federal Reserve: the financial obligations ratio, the credit card default rate, and the credit card charge-off rate,* appear to correlate with, and lead, the consumer bankruptcy filing rate. While all three variables suggest that the downward trend is likely to continue when data is reported for the fourth quarter of 2004, an increase in the financial obligations ratio in the third quarter suggests that filings may begin to increase again in early 2005.

When quarterly data is compared for the period between 1994 and 2004, all three of these variables show a statistically significant correlation with the consumer bankruptcy filing rate. This correlation appears when the variables are compared individually, and in multiple regressions.  For the financial obligations ratio, the strongest correlation appears when the data is lagged by six months.  For the other two variables, the strongest correlation appears when the data is lagged by three months. 

In the second quarter of 2004 the Financial Obligations Ratio declined as against the previous quarter. Similarly in the third quarter of 2004, the credit card default and charge-off rates declined as against the previous quarter. This suggests a continued decline, or at least leveling, of the bankruptcy filing rate through the end of 2004. Year-end data will be available in March. By contrast, the financial obligations ratio increased in the third quarter of 2004.  While the other two variables are not yet available, this suggests that the filing rate might start to increase again in the first quarter of 2005.

“While nobody has a crystal ball, increased consumer debt ratios may be a sign that more families are in financial distress. We’ll know more when the default rates are published in February,” said Ted Janger, a Professor at Brooklyn Law School, and former Robert M. Zinman Resident Scholar at the American Bankruptcy Institute.

Other factors that may influence the consumer bankruptcy filing rate in 2005 include the legislative progress of the proposed Bankruptcy Reform Bill. That statute, if enacted, will make it more difficult for consumers to file chapter 7 bankruptcies. The current version would go into effect six months after it is signed into law, but the more debtor-friendly current law would apply until then. Thus an increase in chapter 7 filings is expected in anticipation of that statute’s passage and effective date.


ABI is the largest multi-disciplinary, non-partisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes over 10,300 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals providing a forum for the exchange of ideas and information. For additional information on ABI, visit ABI World. For additional conference information, visit

*Definitions from

The Financial Obligations Ratio is a measure of a family’s debt burden.   It divides a family’s housing expenses (rent or mortgage, real estate taxes and insurance), automobile expenses (monthly loan or lease payments) and consumer debt payment obligations by that family’s after tax income.   The Credit Card Delinquency Rate measures the percentage of credit card debt outstanding that is more than 30 days past due, and the Credit Card Charge-off Rate measures the percentage of credit card debt that is more than 120 days past due. 




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