In the 1990s and early 2000s more Americans than ever filed for personal bankruptcy. On April 20, 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act into law. The bill was meant to put more money into the hands of creditors, and crack down on filers.
American Radioworks producer Sasha Aslanian and I looked into bankruptcy a year later. We wondered, were the lenders right? Were we becoming a nation of deadbeats? Or were skyrocketing bankruptcy rates a symptom of deeper turmoil in the American economy? (You can listen to it here or read the transcript.)
Bankruptcy has long been the last legal option for anyone burdened with too much debt. But bankruptcy has always raised questions that go far beyond money. For society, the struggle is finding the right balance between honoring debts and a fresh start.
In 2005, lenders convinced Congress that too many people were going belly up. The lenders were right, but mostly for the wrong reasons. The social stigma traditionally attached to bankruptcy has eroded somewhat in recent decades. But that's not what's really driving the bankruptcy boom of the past quarter century. With heightened global competition, everyone faces increased job insecurity and earnings instability. And the modern credit economy, with its loose lending standards, is hazardous to the ill-informed or the unlucky.
As one bankruptcy authority in Memphis put it, Congress only made the bankruptcy door a little smaller and the process of going through that door a little meaner. But odds are the new bankruptcy law won't succeed at closing that door altogether.
After a period of time we both felt that bankruptcy rates would go higher. It's happening even faster than we thought with the Great Recession. Robert Lawless is a scholar at the University of Illinois College of Law. Here's a recent blog post on bankruptcies:
According to data from Automated Access to Court Electronic Records ("AACER"), there were over 120,000 U.S. bankruptcy filings in May 2009 or 6,020 for each of the 20 business days in May. That is the first time daily bankruptcy filings have topped the 6,000 mark since the 2005 bankruptcy law was adopted.
Lawless created this chart that supports his contention that the long-term trend is reasserting itself.(There is a huge spike in bankruptcy filings before the new law went into effect.)