2010 Consumer Bankruptcies Hit Five-Year High

Though 2010 offers a few hopeful signs of economic recovery, its clear millions of consumers are still struggling.

Consumer bankruptcies increased nine percent nationwide in 2010 from the previous year, according to the American Bankruptcy Institute (ABI) relying on data from the National Bankruptcy Research Center (NBKRC).

The data showed the overall consumer filing total for the 2010 calendar year reached 1,530,078 compared with the 1,407,788 total consumer filings recorded during 2009. Annual consumer filings have increased each year since the Bankruptcy Abuse Prevention and Consumer Prevention Act was enacted in 2005.

Little improvement expected

What will 2011 bring? ABI isn't holding out much hope that things will improve.

"The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth," said ABI Executive Director Samuel J. Gerdano. "We expect that consumer filings will continue to rise in 2011."

NBKRC's data also showed that the 118,146 consumer filings recorded in December 2010 represented a four percent increase from the 113,274 filings in December 2009. The December 2010 consumer filings also represented a three percent increase from the November 2010 total of 114,587.

Chapter 13 filings constituted 30 percent of all consumer cases in December, a slight increase from November.

Consumers who had been living on credit may account for a significant portion of those filing for bankruptcy protection. The Federal Reserve reports U.S. consumer credit has fallen in 19 of the last 21 months. Part of that is attributable to consumers paying down debt, but in many cases, credit card companies have closed accounts and lowered credit limits for consumers.

The 2005 bankruptcy law was intended to reduce the number of bankruptcies, but filings have only increased since its passage. In a prescient April 2005 forecast, Global Insight, Inc., predicted a dramatic rise in U.S. bankruptcies.

"We can see clearly the connection between economic conditions and bankruptcy filings," Mark Lauritano, managing director of Global Insight's Financial Practice, said more than five years ago. "In the next few years, as interest rates rise and recent income gains begin to slow, consumer debt burdens will increase both in dollar terms and as a percentage of income. These debt burdens will drive bankruptcy filing rates up."