WASHINGTON-Bankruptcy filings have reached new heights since the reform law became effective. Overall, bankruptcy cases jumped 10% through the 12-month period ending Sept. 30, 2005 setting a new record in filings. Perhaps even more telling of the new law’s impact is that business filings were down as well as Chapter 13 filings where consumers pay back some of their debts. The time frame for the new data from the Administrative Office of the U.S. Courts closed just two weeks before the new law came into effect. In fiscal year 2005 (ending Sept. 30, 2005), nearly 1.8 million people filed for bankruptcy, up from 1.6 million in FY2004. Business filings were down by nearly 600 cases, or 2%, from 2004, but non-business filings rose by more than 150,000 cases to 1,748,421 after a 40,000 drop in filings between 2003 and 2004. The three months running from June 30 through Sept. 30, 2005 also set a record for the number of filings in a quarter at 542,002, which the Administrative Office of the U.S. Courts said just before the new law became effective. The quarter ending June 30, 2005 saw 467,333 filings, which was also up significantly from the 401,149 in the previous quarter. Broken down by chapter, filings where consumer debts were wiped out (Chapter 7) were up 17% from 1,153,865 in FY2004 to 1,346,201 for FY2005. The new bankruptcy law makes it more difficult for filers to qualify for Chapter 7 protection. Chapter 13 filings meanwhile dropped by about 6% and Chapter 11 business reorganizations fell 36% from 10,368 in FY2004 to 6,637 in FY2005. Family farm filings, Chapter 12, jumped 53% from 238 for FY2004 to 364 FY2005. The Third Branch, a newsletter for the federal courts, described the scene outside the Los Angeles bankruptcy court with lines forming at 6 a.m. and 450 petitioners in line by noon. In Chicago, so many people lined up, staff gave out numbers like at a deli. More than 600,000 bankruptcy cases were filed in October 2005 compared with 130,679 in October 2004, according to the newsletter. The Bankruptcy Abuse Prevention and Consumer Protection Act went into effect Monday, Oct. 17. Many courts remained open over the weekend for last-minute filers. NAFCU Senior Economist Jeff Taylor said, “Just talking to [NAFCU] members, they felt some pain in October.” However, credit unions are shielded a bit more from the sting than other financial institutions more involved in unsecured lending. Total federal credit union charge-offs due to bankruptcy increased from 46.3% of total loans at the end of September to 48.0% by the end of October. “If you look at the way it trends, I’d say it was a moderate increase, anyway,” he commented. Taylor pointed out that the increase is more significant given that total charge-offs was down from 0.71% of total loans to 0.70% this month. “I’m sort of curious to see what November brings,” he said, indicating that more of the bankruptcy filings may be seen in the charge-offs. Year-end statistics should include most of the impact of the law change, according to Taylor. [email protected]

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