Bankruptcy

There are three major types of bankruptcies: Chapter 7 is a liquidation, under which assets are distributed by a court-appointed trustee. If there are no assets, the debt is discharged and creditors receive nothing. Chapter 11 is a reorganization, used mostly by businesses, under which debts are restructured and a payment schedule is worked out. Chapter 13 is a debt repayment plan, under which debts are repaid in part or in full over a period of time, normally three years, under the supervision of a trustee.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA), which was the most comprehensive revision of bankruptcy laws in 25 years, instituted a means test that requires people who earn above their state’s median income and can repay at least $6,000 over five years to file for bankruptcy protection under Chapter 13, which mandates a repayment plan. (Under the previous law more debtors were eligible to file under Chapter 7, with its less stringent provisions). There was a precipitous drop in filings in 2006 after the law took effect. Filings rose steadily over the next four years, with annual increases of over 30 percent from 2007 to 2009 and an 8.1 percent rise in 2010. In 2010 a total of 1.6 million bankruptcy petitions were filed in U.S. courts, the greatest number since the 2.1 million bankrupties recorded in 2005. Bankruptcies declined 11.5 percent in 2011, the first drop since 2006.

 

BANKRUPTCY PETITIONS FILED BY TYPE, 2007-2011

Year Business Percent change Nonbusiness Percent change Total Percent change
2007 28,322 43.8% 822,590 37.6% 850,912 37.8%
2008 43,546 53.8 1,074,225 30.6 1,117,771 31.4
2009 60,837 39.7 1,412,838 31.5 1,473,675 31.8
2010 56,282 -7.5 1,536,799 8.8 1,593,081 8.1
2011 47,806 -15.1 1,362,847 -11.3 1,410,653 -11.5

Source: Administrative Office of the U.S. Courts.

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