Order Code RS20777
Updated September 14, 2007
Consumer Bankruptcy and Household Debt
Mark Jickling
Government and Finance Division
Heather D. Negley and Brent W. Mast
Knowledge Services Group
Summary
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA, P.L. 109-8) included the most significant amendments to consumer
bankruptcy procedures since the 1970s. The 110th Congress continues to monitor the
impact of the new law on debtors and creditors. Bankruptcy reform was enacted in
response to the high number of consumer bankruptcy filings, which in 2005 and 2006
reached five times the level of the early 1980s. Why did filings increase so dramatically
during a period that included two of the longest economic expansions in U.S. history?
Because bankruptcy is by definition a condition of excessive debt, many would expect
to see 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 risen only moderately. What 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 2004, 27% of families in the bottom fifth of the
income distribution spent more than 40% of their income to repay debt. This report
presents statistics on bankruptcy filings, household debt, and families in financial
distress, and it will be updated as new statistics become available.
This report presents data on bankruptcy filings, household debt, and families in
financial distress. Table 1 shows filings since 1980. Both business and nonbusiness
bankruptcies rose in the early 1980s, but business filings peaked in 1987 and have since
declined, while the number of consumer filings continued to grow through 2005. In 2005,
the number of filings surpassed 2 million — there was a “rush to the courthouse” as the
effective date of the 2005 bankruptcy law approached. In October 2005 alone, more than
600,000 cases were filed. In 2006, filings dropped sharply, suggesting that the new law
caused many to accelerate their filings, and that many petitions that would have been filed
in 2006 (or later) were pushed forward by the enactment of bankruptcy reform. In the first
half of 2007 nonbusiness filings increased by 48.3%, compared with the first half of 2006,
but remain far below pre-BAPCPA levels.

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CRS-2
Table 1. Bankruptcy Filings in the United States, 1980-2007
Nonbusiness or Consumer Filings
Total Filings
Business Filings
Year
(number)
(number)
% Change from Filings Per 1,000
Number
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
2003
1,660,245
35,037
1,625,208
5.6
5.59
2004
1,597,462
34,317
1,563,145
-3.8
5.32
2005
2,078,415
39,201
2,039,214
30.5
6.92
2006
617,660
19,695
597,965
-70.6
1.98
2007a
404,090
12,985
391,105
48.3
2.60
Source: Administrative Office of the U.S. Courts.
a. 2007 filings are for Jan.-June; % change is from 1st half 2006; ratio based on 1st half at annual rate.

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CRS-3
Table 2. Household Debt Levels and Debt Burden, 1990-2007
Consumer Credit
Home Mortgage Debt
Debt as %
Debt Burden
($ billions)
($ billions)
of
(% of Income
Year
Disposable
Used for Debt
Non-
Home Equity
Personal
Revolving
Total
Total
Payments)
revolving
Loans
Income
1990
238.6
569.6
808.2
214.7
2,502.5
11.98
76.1
1991
263.8
534.3
798.1
222.0
2,681.2
11.53
76.6
1992
278.4
527.7
806.1
217.1
2,852.9
10.80
75.1
1993
309.9
555.7
865.6
210.4
3,007.8
10.80
77.1
1994
365.6
631.6
997.2
221.8
3,173.7
11.17
78.8
1995
443.5
697.5
1,141.0
237.5
3,327.9
11.86
81.6
1996
499.6
743.2
1,242.8
262.6
3,534.8
12.12
84.0
1997
536.7
783.3
1,320.0
297.0
3,752.8
12.11
84.7
1998
576.5
839.3
1,415.8
309.9
4,054.0
12.07
85.5
1999
604.5
923.6
1,528.1
334.3
4,431.0
12.41
89.0
2000
675.7
1,028.9
1,704.6
407.3
4,808.3
12.89
90.5
2001
741.7
1,127.3
1,869.0
439.0
5,292.9
13.39
95.7
2002
762.8
1,189.9
1,952.7
501.1
5,976.8
13.57
101.3
2003
781.6
1,252.8
2,034.4
593.4
6,832.1
13.51
108.5
2004
810.1
1,310.4
2,120.5
778.4
7,808.1
13.65
114.6
2005
829.2
1,348.0
2,177.2
913.8
8,888.1
14.29
120.1
2006
880.1
1,520.0
2,400.1
1,011.9
9,675.7
14.49
124.8
2007a
902.4
1,546.7
2,449.2
1,086.7
10,145.9
14.33
124.4
Sources: (1) Federal Reserve, Release G. 19, Consumer Credit; Release Z.1, Flow of Funds Accounts,
Table L. 218, Household Mortgage Debt; Household Debt Service Obligation Ratios, DSR. (2) Bureau of
Economic Analysis, Personal Income & Outlays, Table 2.1.
a. All 2007 data is for the end of the 2nd quarter.
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 (1) revolving credit, or credit card
debt, and (2) 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 Federal Reserve estimates of the burden of debt service, that
is, the percentage of household disposable income that goes to repay loans. Over the past
decade, the rise in this measure has been steady, but not dramatic. The debt burden figures
in Table 2 fluctuate within a fairly narrow range: from 10.80% to 14.49%. (During the

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CRS-4
1980s, the range was similar: from 10.6% to12.5%.) Although the burden of debt has
risen since the 1980s, particularly since 2001, the increase has been gradual and would
not appear to explain much of the fivefold increase in personal bankruptcy filings over the
past two decades.
It should be kept in mind that interest rates paid by consumers — particularly
mortgage rates — declined in recent years to the lowest levels since the 1950s, and they
remain low despite the Federal Reserve’s gradually raising rates from mid-2004 to mid-
2006. The relative stability of the debt burden in the face of falling and historically low
interest rates implies that the ratio of debt outstanding to income has been rising. This
ratio — the sum of consumer and mortgage debt shown in the table expressed as a
percentage of disposable personal income — is shown in the far right column of Table
2. The increases in this figure, which since 1990 has risen more than twice as fast as the
debt burden, suggest that further increases in bankruptcy filings (and perhaps problems
for lenders) may lie ahead if interest rates should rise further, although the prevalence of
fixed-rate mortgages would mitigate this effect. For the present, however, low rates have
permitted households to take on more debt without a major 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 1995 through 2004.
Table 3. Percentage of Families in Financial Distress
by Income Level, 1995-2004
Percentile of Income
1995
1998
2001
2004
Distribution
All families
11.7
13.6
11.8
12.2
Below 20
27.5
29.9
29.3
27.0
20-39.9
18.0
18.3
16.6
18.6
40-59.9
9.9
15.8
12.3
13.7
60-79.9
7.7
9.8
6.5
7.1
80-89.9
4.7
3.5
3.5
2.4
90-100
2.3
2.8
2.0
1.8
Source: Federal Reserve, Survey of Consumer Finances, in: Federal Reserve Bulletin, February 2006.
Note: Families in “financial distress” are defined as those devoting more than 40% of their incomes to debt
payment.

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CRS-5
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. The
percentage of all families in distress in 2004 is little changed from the 1995 level.
Consumer bankruptcies in 2004, on the other hand, were up 79% over the 1995 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 (or underinsured),
the divorced, or residents of states without mandatory uninsured motorist coverage.
Supporters of the bankruptcy reform measure finally enacted in 2005 argued that the
bankruptcy code was too debtor-friendly and created an incentive to borrow beyond the
ability to repay, or in some cases without the intention of repaying. Opponents of reform
claimed that financial distress is often a by-product of the marketing strategies of credit
card issuers and other consumer lenders. Lack of a consensus explanation for the rise in
consumer bankruptcy filings ensures that the issue will remain controversial.
The argument that consumer behavior is affected by the legal regime was given
some dramatic support by the rush to file before the new law took effect on October 17,
2005.2 Although the number of filings during 2006 was the lowest in decades, it remains
to be seen whether this decline represents the “front-loading” of filings that would
otherwise have taken place in 2006 into the period before the new law’s effective date,
or whether the drop in filings is a sign that the Bankruptcy Abuse Prevention and
Consumer Protection Act will significantly reduce the number of consumer bankruptcy
filings in the long run.
The increase in bankruptcy filings in the first half of 2007, compared with the first
half of 2006, may signal an upward trend, or simply the re-balancing of the number of
filings following the recent legal changes. For a more detailed analysis of filings since
BAPCPA, see CRS Report RS22511, Preliminary Observations on the Impact of the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (P.L. 109-8), by
Brian Cashell, Mark Jickling, and Heather D. Negley.
1 Several studies in the mid-to-late 1990s reported that the median income of bankruptcy
petitioners was about $22,000. See U.S. Government Accountability Office, Personal
Bankruptcy: Analysis of Four Studies on Chapter 7 Debtors’ Ability to Pay, GAO/GGD-99-103,
June 1999, p. 23.
2 Timothy Egan, “Newly Bankrupt Raking In Piles Of Credit Offers,” New York Times, December
11, 2005, p. A1.

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