In that year, the number of filings surpassed 2 million—there was a "rush to the courthouse" before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA; P.L. 109-8 ) took effect in October 2005. Whether BAPCPA will reduce filings in the long run is still unclear. Filings rose steadily from the 2006 lows until 2010, when they exceeded 1.5 million, which was approximately the level during the four years before BAPCPA. Household Debt

 Table 2 shows figures on household debt. Although the burden of debt has risen since the 1980s, 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. Moreover, the decline in the debt service ration since 2007 has not been accompanied by a significant reduction in bankruptcy rates. 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. Table 3 below, based on the Federal Reserve's Survey of Consumer Finances, shows the percentages of families at various income levels that devote more than 40% of their income to debt service, for selected years from 1995 through 2007. The first is the high rate of distress among lower-income families, who are the most likely to file for bankruptcy. The percentage of all families in distress in 2007 was little changed from the 1998 level. 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. Household Deleveraging

In December 2007, the U.S. economy went into recession, in the midst of global financial panic. The decline in debt balances continued for 11 calendar quarters, until debt outstanding rose slightly in the second quarter of 2011. In the third quarter, debt levels fell again. Causes and implications of deleveraging are discussed in CRS Report R41623, U.S. Household Debt Reduction , by [author name scrubbed].
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. Bankruptcy reform was enacted in response to the high number of consumer bankruptcy filings, which in 2004 and 2005 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 evenly on all families. Financial distress is common among lower-income households: in 2007, 27% of families in the bottom fifth of the income distribution spent more than 40% of their income to repay debt.
Following the effective date of BAPCPA, in October 2005, there was a sharp reduction in the number of bankruptcy filings, reflecting the "rush to the courthouse" in the months before the new law took effect. Since the 2006 lows, the number of filings has risen steadily. In 2010, personal bankruptcy filings reached 1.5 million, roughly equal to the pre-BAPCPA level. It appears that BAPCPA has not produced the effect its supporters hoped for—a substantial and permanent reduction in the rate of consumer bankruptcy.
With the recession that began in December 2007, the long-term upward trend in consumer indebtedness was interrupted. Beginning in the middle of 2008, the amount of debt held by U.S. households declined for 11 consecutive quarters. Through the third quarter of 2011, households reduced their debt burden by $853 billion, or 6.5%. Causes and implications of this trend are discussed in CRS Report R41623, U.S. Household Debt Reduction, by [author name scrubbed].
This report presents statistics on bankruptcy filings, household debt, and families in financial distress. It will be updated as new statistics become available.