Order Code RS22511
Updated May 25, 2007
Preliminary Observations on the Impact of the
Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (P.L. 109-8)
Brian Cashell and Mark Jickling
Government and Finance Division
Heather D. Negley
Information Research Specialist
Summary
The Bankruptcy Abuse Prevention and Consumer Protection Act, signed into law
on April 20, 2005, was intended to prevent the filing of abusive bankruptcy petitions and
to encourage debtors with regular incomes to repay as much of what they owed as
possible. The perceived effect of these amendments was to make the bankruptcy code
significantly more favorable to creditors. As a result, there was a “rush to the
courthouse” between the date of enactment and the effective date, October 17, 2005.
During that period, record numbers of consumer bankruptcy petitions were filed.
During 2006, by contrast, the number of filings dropped sharply, to less than a
quarter of the 2005 figure. No doubt much of the decline is explained by what happened
during the transition — many consumer bankruptcies filed in 2005 were accelerated by
the enactment of the new law and would otherwise have been filed in 2006 or later. At
the same time, part of the slowdown may be permanent, if the new law is having its
intended effect of discouraging certain types of filings. With only one year’s data under
the new law, it is too soon to conclude what the lasting impact will be. This report
examines the evidence to date, and offers some preliminary observations on the numbers
and types of bankruptcy petitions filed. It will be updated as new statistics become
available.
Despite the fact that two of the longest economic expansions in U.S. history occurred
during the 1980s and 1990s, the number of consumer bankruptcy filings rose sharply
during those decades (and continued to rise after 2000). This paradox attracted two kinds
of explanations. Some analysts detect a growing “financial fragility” among American
families — factors such as medical costs, stagnant median wages, low rates of saving, or
increased dependence on two incomes are said to make households more vulnerable to
financial shocks. Others argued that the bankruptcy code itself was driving up the number
of filings. In this view, the existing law made it too easy for consumers to have their
debts discharged (or erased) by the courts, and thus created an incentive for imprudent or

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even fraudulent borrowing. Behind the 2005 bankruptcy reform legislation lay “a
growing perception that bankruptcy relief may be too readily available and is sometimes
used as a first resort, rather than a last resort,” and that the law was full of “loopholes and
incentives that allow and — sometimes — even encourage opportunistic personal filings
and abuse.”1
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was meant
to “respond to many of the factors contributing to the increase in consumer bankruptcy
filings, such as lack of personal financial accountability, the proliferation of serial filings,
and the absence of effective oversight to eliminate abuse in the system. The heart of the
bill’s consumer bankruptcy reforms consists of the implementation of an income/expense
screening mechanism (‘needs-based bankruptcy relief’ or ‘means testing’), which is
intended to ensure that debtors repay creditors the maximum they can afford.”2
The means test weighs debtors’ income against their debts and living expenses
according to an arithmetical formula contained in the statute.3 In general, debtors whose
income — net of specified expenses and allowances — exceeds certain thresholds are not
allowed to file Chapter 7 bankruptcies (where debts are discharged and consumers are free
to make a fresh start) but must either file Chapter 13 petitions (under which they agree to
repay part of their debts over a period of several years under a court-approved plan) or
receive no bankruptcy relief at all.4
Thus, the new law — if it works as its sponsors intended — should have two effects.
Consumers with steady incomes and the ability to repay, who filed Chapter 7 petitions
under the old law, should be steered into Chapter 13. Second, the total number of
bankruptcies should decline as “opportunistic” filings are deterred. The tables below
present the data that bear on these questions.
Total Number of Filings
Table 1 below shows quarterly nonbusiness bankruptcy filings since the beginning
of 2002. Through the first quarter of 2005, these figures show no clear trend but fluctuate
at a very high level by historical standards. In the second quarter, the rush to file under
the old law becomes apparent: the 458,597 filings reported were an all-time quarterly
high. The record did not last long — the number jumped to 532,526 in the third quarter
and then to 654,633 in the fourth quarter, when the new law took effect (on October 17).
Dramatic as these increases are, the quarterly data actually conceal how abrupt the
transition was. The Administrative Office of the U.S. Courts, against its usual practice,
published monthly data for 2004 and 2005. In October 2005, 619,588 nonbusiness cases
were filed. In November, the figure fell to 13,643.
1 House Committee on the Judiciary, Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005, H.Rept. 109-31, part 1, pp. 4-5.
2 Ibid, p. 2.
3 See CRS Report RS22058, Bankruptcy Reform: The Means Test, by Mark Jickling.
4 In the absence of federal bankruptcy relief, creditors are free to pursue state law remedies to
collect what is owed them.

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CRS-3
Table 1. Nonbusiness Bankruptcy Filings by Chapter, 2002-2006
Quarter
Nonbusiness Filings
Ch. 13 as
Ending
Total
Chap. 7
Chap. 11
Chap. 13
% of Total
Dec 2006
172,013
98,824
134
73,052
42.5%
Sept 2006
165,862
96,442
140
69,280
42.0
Jun 2006
150,975
91,674
131
59,170
39.2
Mar 2006
112,685
63,250
121
49,314
43.8
Dec 2005
654,633
560,654
263
93,714
14.3
Sep 2005
532,526
422,467
225
109,833
20.6
Jun 2005
458,597
356,389
190
102,017
22.2
Mar 2005
393,086
289,269
201
103,646
26.4
Dec 2004
363,890
254,518
253
109,116
30.0
Sep 2004
388,864
274,196
213
114,454
29.4
Jun 2004
412,861
302,803
214
109,843
26.6
Mar 2004
397,006
285,787
280
110,939
27.9
Dec 2003
385,054
270,519
226
114,308
29.7
Sep 2003
404,543
287,187
235
117,119
29.0
Jun 2003
430,926
312,221
251
118,452
27.5
Mar 2003
404,154
285,883
242
118,029
29.2
Dec 2002
385,629
270,527
224
114,874
29.8
Sep 2002
391,873
275,594
245
116,033
29.6
June 2002
390,991
280,891
254
109,843
28.1
Mar 2002
369,237
259,447
261
109,527
29.7
Source: Administrative Office of the U.S. Courts.
Figure 1. Nonbusiness Chapter 7 and 13 Bankruptcy Filings, 2002-2006
Source: Administrative Office of the U.S. Courts.

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CRS-4
In December 2005, the number of filings increased slightly, and the rising trend
continued through 2006. Given that the latest figures remain far below pre-2005 levels,
it seems likely that the aftereffects of the rush to file triggered by the new law are still
being felt. This suggests that filings will continue to rise into 2007. It remains to be seen
whether filings will level off before they reach the levels that prevailed a few years ago
under the old bankruptcy law.
Chapter 7 Versus Chapter 13
A major aim of the 2005 bankruptcy amendments was to steer debtors with the
ability to repay at least some of their debts into Chapter 13, where the bankruptcy court
collects part of the debtor’s income for a number of years and distributes it to creditors.
Before 2005, about 30% of all nonbusiness cases were Chapter 13, and virtually all the
rest were Chapter 7.5
The data in Table 1 illustrate that the rush to file before the effective date of the new
law was in fact a rush into Chapter 7. Even though the total number of filings in 2005
set a record, the number of Chapter 13 cases declined from 2004. Clearly the message
that debtors received about the new law was that Chapter 7 relief would become more
difficult to obtain, and that Chapter 13 was a considerably less desirable alternative.
The percentage of cases filed under Chapter 13 has varied significantly and
persistently from state to state. In 2002, 29% of cases nationwide were Chapter 13, but
five states reported that Chapter 13 accounted for a majority of all petitions. On the other
hand, ten states had rates of less than 10%.6 Tables 2 and 3 break out the 10 states with
the highest and lowest Chapter 13 rates in 2002, and present data on what happened there
in 2005 and 2006.
Table 3 shows that the percentage decline in Chapter 13 filings reported in 2005 was
greatest in the states that had the highest rates in 2002. In 2006, the percentage of
Chapter 13 cases has risen above the historical norm in both high and low rate states, but
the increase from 2002 to 2006 is not more pronounced in either group of states. One
might have expected the primary impact of the new law to be felt in states where Chapter
13 was relatively rare under the old law, but the data do not show this. Instead, there
appears to be an across-the-board increase in the percentage of cases filed under Chapter
13. As in the case of total bankruptcy filings, some of this increase is likely due to the
transition experience (when the accelerated filings — and subsequent drop-off — were
predominantly Chapter 7 cases), and it is uncertain how far (or whether) the Chapter 13
rate will remain permanently above the pre-reform level.
5 Nonbusiness petitioners can file under Chapter 11, which is standard for corporate
reorganizations. However, because of the complex and costly procedural requirements, only a
few individuals use it, as Table 1 shows.
6 The “high Chapter 13” states were mostly in the south, while the “low” states were
geographically dispersed, small-population states. The differences are usually explained as a
result of varying court norms, or “legal culture.”

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Table 2. Number and Percentage of Nonbusiness Bankruptcies Filed Under Chapter 13, 2002-2006
2002
2005
2006
State
Chapter 13 as
Chapter 13 as
Chapter 13 as
Total
Chapter 13
Total
Chapter 13
Total
Chapter 13
% of total
% of total
% of total
GA
74,354
42,844
57.6%
79,273
34,449
43.5%
39,142
24,355
62.2%
SC
15,575
8,837
56.7
15,352
7,913
51.5
6,047
4,414
73.0
TN
62,473
32,707
52.4
65,360
27,868
42.6
31,406
20,638
65.7
AL
41,478
21,690
52.3
47,513
19,234
40.5
19,420
12,863
66.2
NC
35,806
18,693
52.2
42,402
16,015
37.8
16,838
9,273
55.1
TX
77,056
35,996
46.7
117,612
36,842
31.3
34,550
20,395
59.0
AR
23,264
9,709
41.7
30,142
10,177
33.8
9,288
5,028
54.1
LA
26,461
10,267
38.8
36,024
11,006
30.6
10,750
6,614
61.5
DE
3,140
1,186
37.8
4,150
1,208
29.1
1,284
618
48.1
NJ
40,310
14,712
36.5
48,832
11,834
24.2
13,548
5,677
41.9
Total U.S.
1,536,979
443,952
28.9
2,039,214
407,322
20.0
597,965
248,430
41.5
NH
3,822
361
9.4
5,511
471
8.5
1,707
471
27.6
NM
8,581
767
8.9
11,592
616
5.3
2,426
293
12.1
ME
4,321
366
8.5
6,470
386
6.0
1,238
251
20.3
RI
4,842
393
8.1
5,703
298
5.2
1,573
326
20.7
AK
1,359
110
8.1
2,214
149
6.7
577
90
15.6
WY
2,217
137
6.2
3,183
144
4.5
650
106
16.3
WV
10,109
531
5.3
17,475
619
3.5
2,919
365
12.5
IA
11,454
576
5.0
18,254
895
4.9
4,683
547
11.7
SD
2,540
125
4.9
3,975
293
7.4
900
145
16.1
ND
1,958
79
4.0
3,444
168
4.9
711
93
13.1
Source: Administrative Office of the U.S. Courts.

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Table 3. Change in the Percentage of Nonbusiness Bankruptcies
Filed Under Chapter 13, for Selected States: 2002-2006
Chapter 13 as a Percent of Total
Percentage Point Change From
State
2002
2005
2006
2002 to 2005
2002 to 2006
GA
57.6%
43.5%
62.2%
-14.2
4.6
SC
56.7
51.5
73.0
-5.2
16.3
TN
52.4
42.6
65.7
-9.7
13.3
AL
52.3
40.5
66.2
-11.8
13.9
NC
52.2
37.8
55.1
-14.4
2.9
TX
46.7
31.3
59.0
-15.4
12.3
AR
41.7
33.8
54.1
-8.0
12.4
LA
38.8
30.6
61.5
-8.2
22.7
DE
37.8
29.1
48.1
-8.7
10.3
NJ
36.5
24.2
41.9
-12.3
5..4
Total U.S.
28.9
20.0
41.5
-8.9
12.6
NH
9.4
8.5
27.6
-0.9
18.2
NM
8.9
5.3
12.1
-3.6
3.2
ME
8.5
6.0
20.3
-2.5
11.8
RI
8.1
5.2
20.7
-2.9
12.6
AK
8.1
6.7
15.6
-1.4
7.5
WY
6.2
4.5
16.3
-1.7
10.1
WV
5.3
3.5
12.5
-1.7
7.2
IA
5.0
4.9
11.7
-0.1
6.7
SD
4.9
7.4
16.1
2.4
11.2
ND
4.0
4.9
13.1
0.8
9.1
crsphpgw
Source: Administrative Office of the U.S. Courts.

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