Order Code RS20777
Updated February 27, 2003
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 considered, but did not pass, legislation (H.R. 333) that would
have required some consumer bankruptcy petitioners to repay certain debts rather than
have them discharged, or erased, by the bankruptcy court. The issue is likely to be taken
up again in the 108th Congress. The principal impetus behind bankruptcy reform is the
high number of consumer bankruptcy filings, which in recent years have been running
at over 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 statistics do not show is that the debt
burden does not fall equally on all families. Financial distress is most common among
lower-income households: in 2001, 27% of families in the bottom fifth of the income
distribution had debt service payments that exceeded 40% of their incomes. This
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
families in financial distress, and will be updated as new statistics become available.
For discussion of bankruptcy reform proposals, see CRS Report RL31706, Bankruptcy
Reform: A Recap.
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 has
continued to grow. 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, and again in 2002, however, consumer bankruptcy filings
surpassed the previous record.
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
1,577,651
38,540
1,539,111
6.0
5.33
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)
Consumer Credit
Home Mortgage Debt
Debt Burden (% of Income
Debt as % of
Year
($ billions)
($ billions)
Used for Debt Payments)
Disposable
Personal
Revolving
Non-
Total
Home Equity
Total
Consumer
Mortgage
Total
Income
revolving
Loans
Debt
Debt
1990
250.9
554.2
805.1
235.9
2,532.3
7.10
6.31
13.41
80.0
1991
277.1
517.4
794.5
256.4
2,708.7
6.51
6.26
12.77
80.7
1992
292.2
508.3
800.6
255.6
2,865.1
5.97
5.88
11.85
79.6
1993
325.0
534.0
859.0
248.2
3,001.4
6.09
5.67
11.76
80.6
1994
383.2
600.7
983.9
264.4
3,178.2
6.48
5.69
12.17
82.9
1995
464.1
658.7
1,122.8
289.3
3,367.6
7.04
5.85
12.89
85.1
1996
494.4
683.1
1,182.6
338.1
3,577.7
7.43
5.83
13.26
86.0
1997
531.0
712.0
1,243.0
416.2
3,818.1
7.44
5.90
13.35
87.3
1998
562.5
755.0
1,317.5
476.7
4,157.2
7.51
5.89
13.40
86.1
1999
597.7
818.6
1,416.3
532.8
4,531.1
7.56
6.09
13.65
89.7
2000
666.5
894.0
1,560.6
630.6
4,901.8 7.82
6.44
14.26
90.8
2001
699.4
968.0
1,667.5
699.4
5,379.8
8.00
6.32
14.32
95.3
2002
711.2
1,011.1
1,722.3
799.6
5,849.7
7.76 6.24
14.00
96.0

Note: 2002 consumer credit figures are for year-end; all other 2002 figures for the end of the third 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 also 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 lending, is
broken out in the table because it may substitute for consumer credit 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 receive 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 %.)
However, it should be kept in mind that interest rates – particularly mortgage rates – have
declined in recent years and are now at the lowest levels in decades. Therefore, the
relative stability of the debt burden in the face of falling interest rates implies that the ratio
of debt to income has been rising. This ratio – total household debt as a percentage of
disposable personal income – is shown in the right hand column of table 2. The increases
in this figure, particularly in the last few years, suggest that further increases in
bankruptcy filings (and perhaps problems for lenders) may lie ahead if mortgage and other
interest rates rise significantly. For the present, however, falling rates have permitted
households to take on more debt without a corresponding increase in the debt burden.
The aggregate household debt 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 1992 through 2001.

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CRS-5
Table 3. Percentage of Families in Financial Distress*
by Income Level, 1992-2001
Percentile of Income
1992
1995
1998
2001
All Families
10.8
10.6
12.8
11.0
Less than 20
26.4
26.2
28.2
27.0
20 – 39.9
15.1
16.0
17.2
16.0
40 – 59.9
10.1
8.1
15.3
11.7
60 – 79.9
7.6
7.1
8.6
5.6
80 – 89.9
2.9
4.6
3.4
3.5
90 – 100
2.5
2.0
2.6
2.0

* “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 2003.
Two noteworthy facts emerge from the data in Table 3. First is the high rate of
distress among lower-income families, who are the most likely to file for bankruptcy.1
Second, like the debt burden figures shown in Table 2 above, there is no sharply rising
trend that would explain the dramatic increase in personal bankruptcy filings. Between
1998 and 2001, the incidence of financial distress fell, even for those in the bottom
income quintile. As a result of the 1998-2001 decline, for which falling interest rates may
be primarily responsible, the percentage of all families in distress in 2001 is little changed
from the 1992 figure.
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. 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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