Order Code RS20777
Updated September 6, 2002
CRS Report for Congress
Received through the CRS Web
Consumer Bankruptcy and Household Debt
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Summary
The 107th Congress is considering legislation (H.R. 333, S. 220) that would require
some consumer bankruptcy petitioners to repay certain debts rather than have them
discharged, or erased, by the bankruptcy court. The principal impetus behind
bankruptcy reform is the high number of consumer bankruptcy filings, which in recent
years have been running at nearly four times the levels of the early 1980s. It is not clear
why bankruptcy filings have increased so dramatically during a period that has included
two of the longest economic expansions in U.S. history. Since bankruptcy is almost by
definition a condition of excessive debt, many would expect to observe a corresponding
increase in the debt burden of U.S. households over the same period. However, while
household debt has indeed grown, debt costs as a percentage of income have been fairly
constant over the past two decades. What these aggregate debt statistics do not show is
that there has been an increase in the percentage of families in financial distress (those
spending more than 40% of their incomes on debt service). Financial distress is most
common among lower-income families, but its incidence has grown in all income
brackets. This trend suggests that explanations for the rise in consumer bankruptcy
filings are more likely to be found in micro-analysis of individuals and groups of debtors
than in macroeconomic indicators. This report presents statistics on bankruptcy filings,
household debt, and households in financial distress, and will be updated as new
statistics become available. For discussion of bankruptcy reform proposals, see CRS
Report RL30865, Bankruptcy Reform Legislation in the 107th Congress.
The tables below present data on bankruptcy filings, household debt, and families
in financial distress. Table 1 shows bankruptcy filings since 1980. Both business and
non-business bankruptcies showed increases in the early 1980s, but business filings
peaked in 1987 and have since declined, while the number of consumer filings continued
to grow through the 1990s. Consumer bankruptcies exhibit a pattern of rapid annual
growth for several years, a 2- or 3-year pause, and a resumption of growth. The most
recent pause began in 1999 and continued through the end of 2000: there were 13% fewer
filings in 2000 than in 1998. In 2001, however, consumer bankruptcies were up 19% over
the previous year, and exceeded the previous high reached in 1988. The rate of filings did
not slacken during the first half of 2002.
Congressional Research Service ˜ The Library of Congress

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CRS-2
Table 1. Bankruptcy Filings in the United States, 1980-2002
Year
Total Business
Nonbusiness or Consumer Filings
Number
Number
Number
% Change from
Rate per 1,000
Previous Year
Population
1980
331,264
43,694
287,570
46.0
1.26
1981
363,943
48,125
315,818
9.8
1.37
1982
380,251
69,300
310,951
-1.5
1.34
1983
348,880
62,436
286,444
-7.9
1.22
1984
348,521
64,004
284,517
-0.7
1.20
1985
412,510
71,277
341,233
19.9
1.43
1986
530,438
81,235
449,203
31.6
1.87
1987
577,999
82,446
495,553
10.3
2.04
1988
613,465
63,853
549,612
10.9
2.24
1989
679,461
63,235
616,226
12.1
2.49
1990
782,960
64,853
718,107
16.5
2.87
1991
943,987
71,549
872,438
21.5
3.45
1992
971,517
70,643
900,874
3.3
3.53
1993
875,202
62,304
812,898
-9.8
3.15
1994
832,829
52,374
780,455
-4.0
2.99
1995
926,601
51,959
874,642
12.1
3.33
1996
1,178,555
53,549
1,125,006
28.6
4.24
1997
1,404,145
54,027
1,350,118
20.0
5.02
1998
1,442,549
44,367
1,398,182
3.6
5.17
1999
1,319,465
37,844
1,281,581
-8.3
4.68
2000
1,253,444
35,472
1,217,972
-5.0
4.54
2001
1,492,129
40,099
1,452,030
19.2
5.10
2002*
779,698
19,470
760,228
8.6
5.09
* 2002 filing numbers are for Jan.- June; percentage change and rate per 1,000 population figures
are based on the twelve months ending June 30, 2002.
Source: Administrative Office of the U.S. Courts.

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CRS-3
Table 2. Household Debt Levels and Debt Burden, 1990 – 2002
(At end of year, except as noted for 2002)
Year
Consumer Credit
Home Mortgage Debt
Debt Burden
($ billions)
($ billions)
(% of Income Used for Debt Payments)
Revolving
Non-
Total
Home Equity
Total
Consumer
Mortgage
Total
revolving
Loans
Debt
Debt
1990
250.9
554.2
805.1
235.9
2,532.3
7.10
6.31
13.41
1991
277.1
517.4
794.5
256.4
2,708.7
6.51
6.26
12.77
1992
292.2
508.3
800.6
255.6
2,865.1
5.97
5.88
11.85
1993
325.0
534.0
859.0
248.2
3,001.4
6.09
5.67
11.76
1994
383.2
600.7
983.9
264.4
3,178.2
6.48
5.69
12.17
1995
464.1
658.7
1,122.8
289.3
3,367.6
7.04
5.85
12.89
1996
494.4
683.1
1,182.6
338.1
3,577.7
7.43
5.83
13.26
1997
531.0
712.0
1,243.0
416.2
3,818.1
7.44
5.90
13.35
1998
562.5
755.0
1,317.5
476.7
4,169.5
7.51
5.89
13.40
1999
597.7
818.6
1,416.3
532.8
4,558.9
7.56
6.09
13.65
2000
666.5
894.0
1,560.6
630.5
4,941.5 7.82
6.44
14.26
2001
699.4
968.0
1,667.5
702.3
5,740.1
8.00
6.32
14.32
2002
714.9
998.1
1,713.0
725.6
5,872.7
7.85 6.20
14.05
Note: 2002 figures for consumer credit are end of first half; 2002 mortgage debt and debt burden figures are end of 1std quarter.
Source: Federal Reserve. Release G. 19 (consumer credit) and Flow of Funds Accounts,
Table L. 218 (household mortgage debt).

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CRS-4
Table 2 shows figures on household debt. The major categories of household debt
are mortgage debt and consumer credit, which together comprise about 97% of all
household indebtedness. Consumer credit consists of revolving credit, or credit card debt,
and non-revolving debt, which is dominated by auto loans (though it includes loans for
boats, mobile homes, vacations, and so on). Mortgage debt is borrowing secured by real
estate. A rapidly growing category within mortgage debt, home equity loans, is broken
out in the table because it may substitute for consumer debt in many cases.
Table 2 also includes estimates of the burden of debt service, that is, the percentage
of household disposable income that goes to repay loans. It is noteworthy that consumer
credit is more expensive in terms of debt costs than is mortgage debt, even though the
principal outstanding on mortgage debt is three times as great. This reflects the higher
interest rates charged and the shorter maturities in consumer lending, as well as the fact
that mortgage and home equity debt receives favorable tax treatment.
The total debt burden figures in table 2 fluctuate within a fairly narrow range: from
11.8% to 14.3%. (During the 1980s, the range was similar: from 12.3% to 14.2 %.)
These figures do not suggest any dramatic trend towards higher indebtedness on
household balance sheets. In the aggregate, Americans have taken on more debt, but their
incomes have kept pace. The relative stability of the debt burden would not lead one to
expect the explosion in consumer bankruptcy filings that has in fact occurred.
It is likely that the aggregate numbers mask important differences among families:
some have done very well in the long booms of the 1980s and 1990s, while others have
taken on debt that they have difficulty repaying. Table 3 below, based on the Federal
Reserve’s Survey of Consumer Finances, shows the percentage of families at various
income levels who devote more than 40% of their incomes to debt service, for selected
years from 1989 through 1998 (more recent data is not yet available).
Table 3. Families in Financial Distress* by Income Level, 1989-1998
(Percent)
Income (In 1998 dollars)
1989
1992
1995
1998
All Families
10.1
10.9
10.5
12.7
Less than $10,000
28.6
28.4
27.6
32.0
$10,000 – $24,999
15.0
15.5
17.3
19.9
$25,000 – $49,999
9.1
9.6
8.0
13.8
$50,000 – $99,999
4.9
4.4
4.2
5.7
Over $100,000
1.8
2.2
1.7
2.1

* “Financial distress” means that debt service payments consume over 40% of the
family’s income.
Source: Federal Reserve. Survey of Consumer Finances. In: Federal Reserve
Bulletin, January 2000.

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CRS-5
Two striking facts emerge from the data in Table 3. First, financial distress has
become more common over the last decade despite unusually favorable conditions in the
general economy. The incidence of distress was higher in 1998 than in 1989 for families
of all income levels. It may be that economic good times encourage consumers to take
on more debt, in confidence that they will be able to repay as their incomes rise. Second
is the extremely high rate of distress among lower-income families, who are the most
likely to file for bankruptcy.1
The question remains why so many families at or below the national median income
take on high levels of debt and end up in bankruptcy court. Some explanations focus on
particularly vulnerable populations: the sick and uninsured, the divorced, or residents of
states without mandatory uninsured motorist coverage or with “pro-debtor” legal cultures.
Supporters of bankruptcy reform maintain that the current bankruptcy code is too debtor-
friendly and creates an incentive to borrow beyond the ability to repay, or in some cases
without the intention of repaying. Opponents of reform claim that financial distress is
often a by-product of the high-pressure marketing campaigns of credit card issuers and
other consumer lenders. Lack of a consensus explanation for the rise in consumer
bankruptcy filings ensures that reform efforts will be controversial.
1 Several studies in the mid-to-late 1990s reported that the median income of bankruptcy
petitioners was about $22,000. See: U.S. General Accounting Office. Personal Bankruptcy:
Analysis of Four Studies on Chapter 7 Debtors’ Ability to Pay. GAO/GGD-99-103. June 1999.
p. 23.

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