Bankruptcy filings low — but rising

WASHINGTON (AP) — A year after a tough new law took effect, the number of indebted consumers filing bankruptcy remains historically low but has steadily increased since the first quarter of 2006, new data shows.

Consumer bankruptcy filings continued to increase in every region in the third quarter of this year, according to the data released Tuesday by Lundquist Consulting Inc., a financial research firm based in Burlingame, Calif.

It tallied 160,198 new filings in the July-September period, down sharply from 509,626 in the third quarter of 2005 but up from 102,949 in the first quarter of this year and 142,815 in the second quarter.

The new law, bringing the most sweeping overhaul of the U.S. Bankruptcy Code in a quarter-century and making it harder to erase debts in bankruptcy, was passed by Congress and signed into law by President Bush in April 2005. It took effect on Oct. 17, 2005.

In anticipation, personal bankruptcy filings jumped in September 2005 to the highest on record, averaging more than 9,000 a day during the first two weeks of that month.

Lundquist analysts set the number of bankruptcy filings in the year that has passed at around 475,000, compared with an average 1.4 million to 1.5 million a year from 2000 through 2004.

Within the smaller number overall, 57 percent of the filings were made under Chapter 7 of the bankruptcy code, compared with the usual 70.9 percent, Lundquist said. Chapter 13 filings were around 42 percent, up from the 2000-2004 rate of 29 percent.

The law bars those with above-average income from Chapter 7 — where debts can be dissolved entirely — except under special circumstances. Those deemed by a new "means test" to have at least $100 a month left over after paying certain debts and expenses now have to file instead a five-year repayment plan under the more restrictive Chapter 13.