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2nd Quarter of 1998 Records
Highest Number of Bankruptcy Filings Ever

While Business Filings Drop ...
... Personal Bankruptcies Increase by More than 20,000 from 1st Quarter ‘98

    August 11, 1998--ALEXANDRIA, Va.--Personal bankruptcies rose by 5.9 percent to 361,908 filings in the second quarter of 1998, up by more than 20,000 from the first quarter of the year. Personal filings comprised 97 percent of all filings for the second quarter, which broke the record for the highest number of bankruptcies ever in a three-month period, according to statistics released by the Administrative Office of the U.S. Courts.        

    Total bankruptcy filings rose 5.5 percent for the quarter ending June 30, 1998 to 373,460, surpassing the mark set by the 1997 second quarter results.         

    Conversely, business bankruptcies continued on their downward spiral, dropping by 6.9 percent in the second quarter to 11,552 filings.     

    To date this year, there have been 727,578 total bankruptcy filings, outpacing record filings in 1997. Bankruptcy filings surpassed 1.4 million in 1997, with 702,241 in the first half of the year.       

    Samuel J. Gerdano, executive director of the American Bankruptcy Institute, said the dramatic increase in consumer filings can be attributed to sustained high levels of household debt and a fear of the movement to pass bankruptcy reform legislation on Capitol Hill this year. “Debtors’ attorneys are aware that the Bankruptcy Code may change dramatically in the next few months and may be advising their clients to take advantage of the current law while it is still available,” Gerdano said.    

    Bankruptcy reform legislation has already passed the House of Representatives this year (H.R. 3150) and awaits action on the Senate floor (S. 1301). The main thrust of the pending legislation is to shift some debtors from Chapter 7 to Chapter 13, which would require debtors to repay some of their debts through future income.*    

    Gerdano said many debtors file for bankruptcy because they are overextended and can’t get out from under their debt. Gerdano also cited major life-changing events, such as divorce, lay-offs and illness, as other causes. He said the decrease in bankruptcy’s negative stigma and the abundance of credit are additional variables that also contribute to high bankruptcy rates.

    ABI is the largest multi-disciplinary, non-partisan and nonprofit organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide its members, Congress, journalists and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 6,300 attorneys, bankers, judges, lenders, professors, turnaround specialists, accountants and other bankruptcy professionals providing a forum for the exchange of ideas and information. For more information on ABI, visit ABI World at http://www.abiworld.org. And for information and statistics collected specifically for the media, visit http://www.abiworld.org/media/media.html.

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ABI Facts...

... One in every 70 U.S. households filed for bankruptcy in CY 1997.

... Total personal bankruptcies in CY 1997 were 1,350,118, a 49.9 percent increase from CY 1992, the height of the Recession, when personal bankruptcies reached 900,874.

... July 1, 1998 marked the 100th anniversary of the enactment of the Bankruptcy Act of 1898, the law that made bankruptcy a permanent part of the U.S. Code. The Act stood for 80 years before it was repealed by the Bankruptcy Reform Act of 1978. The Act of 1898 brought forth the modern era of liberal debtor treatment in U.S. bankruptcy law, by abolishing a number of restrictions on the availability of a debtor's discharge.

*Definitions from Bankruptcy Overview: Issues, Law and Policy, published by the American Bankruptcy Institute

Chapter 7 of the Bankruptcy Code is available to both individual and business debtors. Its purpose is to achieve a fair distribution to creditors of whatever non-exempt property the debtor has and to give the individual debtor a fresh start through the discharge in bankruptcy.

Chapter 11 of the Bankruptcy Code is available for both consumer and business debtors. Its purpose is to rehabilitate a business as a going concern or reorganize an individual’s finances through a court-approved reorganization plan.

Chapter 12 of the Bankruptcy Code is designed to give special debt relief to a family farmer with regular income from farming.

Chapter 13 of the Bankruptcy Code is available for an individual with regular income whose debts do not exceed specific amounts, typically used to budget some of the debtor’s future earnings under a plan through which creditors are paid in whole or in part.

Web posted and Copyright © August 11, 1998, American Bankruptcy Institute.

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