The Bankruptcy Issues Council, a coalition that includes
Visa, MasterCard and their member banks, provided the
following summary of recent research on bankruptcy. A link
to the full text of each study is provided.
Many independent studies have examined various aspects of
personal bankruptcy in recent years. While the methodology of
each study is different, the major research demonstrates that:
In every database used, a large
percentage of bankruptcy filers who receive debt relief under
Chapter 7 actually have enough income to repay a significant
portion of what they owe.
A. Ernst & Young LLP --
"Chapter 7 Bankruptcy Petitioners' Ability to Repay:
- Statistically reliable national sample of over 2,100 1997
bankruptcy petitions from all 90 districts.
- The needs-based test contained in legislation currently
pending in the House of Representatives ("The Bankruptcy
Act of 1998, H.R. 3150") was applied to each filer:
- Is the filer's gross income greater than 75 percent
of the national median income (adjusted for household
- Is the filer's net monthly income greater than $50?
- Can the filer repay at least 20 percent of unsecured
debts over five years?
- If the answer is "yes" to each of the above
filer is considered to be "impacted" by H.R. 3150. He
she would be required to file a repayment plan under Chapter 13
(rather than receiving complete debt relief under Chapter
- 15 percent of Chapter 7 filers would have been impacted
(i.e., required to file a repayment plan under Chapter 13) had
H.R. 3150 been in effect in 1997.
- Impacted filers could have repaid 64 percent of their
unsecured, non-priority debts over five years, resulting in
recovery of $4 billion nationally.
- Median income of filers who would have been impacted was
$44,738, well above the national median income of $35,492.
- Median incomes of filers who would have been impacted were
over twice those of filers who would not have been
See the complete study in PDF format:
B. Ernst & Young LLP --
Chapter 7 Bankruptcy Petitioners' Ability to Repay:
Evidence from Bankruptcy Petition Files" (February
- Researchers examined 5,700 bankruptcy petitions filed in four
economically and geographically diverse cities - Boston, Chicago,
Los Angeles and Nashville - between late 1991 and 1993.
- Researchers calculated, based on each debtor's income, expenses
and obligations, how much debt they could have repaid.
- Researchers examined the needs-based provision of H.R. 3150 to
determine the effect that this legislation would have had on
7 filers had the bill been in place when they filed.
Using expenses from actual bankruptcy petitions:
Using standard IRS expenses:
- 10 percent of Chapter 7 filers in the database could have
ALL of their debts.
- 30 percent of Chapter 7 filers in the database could have paid
at least one-third of what they their non-housing debts.
- Between 8 and 14 percent of Chapter 7 filers in the four cities
would have had to file a repayment plan under Chapter 13 had the
needs-based provision of the Bankruptcy Reform Act of 1998 (H.R.
been in effect when they filed.
- These individuals could have repaid 63 to 85 percent of their
unsecured, non-priority debt.
See the complete study:
C. The WEFA Group,
"The Financial Costs of Personal Bankruptcy" (February
- Researchers reviewed more than 7,000 1991-1993 bankruptcy
petitions, in both Chapter 7 and Chapter 13, from four cities
- Boston, Chicago, Los Angeles and Nashville.
- Researchers created an "average debt profile"
for each filer, breaking down their debt into secured, priority
and unsecured debts.
- Researchers estimated repayment for each type of debt to
determine net losses to creditors.
- Added to creditor losses was an estimate of legal fees,
court and administrative costs, yielding a total cost to the
- Bankruptcies cost the American economy $44 billion in
- If bankruptcies rose at a rate of just 15 percent a year
over the next three years, the cumulative losses to the
economy 1997-2000 would total $221.2 billion.
- If H.R. 3150 was implemented, between 8.2 percent and
16.7 percent of current losses would be saved, representing
a potential cumulative savings of $29.5 billion over the next
three years (1998-2000).
D. Georgetown University
Credit Research Center, "Personal Bankruptcy:
A Report on
Petitioners' Ability-to-Pay" (October 1997)
- Analyzed 3,800 1996 petitions from 13 district courts
in 11 states.
- Researchers calculated, based on each debtor's income,
expenses and housing obligations, how much non-housing debt
they could have repaid over five years.
Using expenses from actual bankruptcy petitions:
- 25 percent of Chapter 7 filers could repay 30 percent or
more of their non-housing debt over five years.
- 5 percent of Chapter 7 filers could repay ALL of their
debts over five years.
- 77 percent of Chapter 7 filers have steady income from
- 85 percent of Chapter 13 filers have steady income from
See the complete report in PDF format: