WASHINGTON — Time will only tell the success or failure of the credit union trade association-backed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 signed into law April of last year.
Though the Administrative Office of the U.S. Courts came out with statistics last month showing bankruptcy filings down significantly at the 12-month period ending June 30, 2006 from the one ending June 30, 2005–1,484,570 down from 1,637,254–CUNA Chief Economist Bill Hampel said it is still too early to determine the lasting effects of the change in the law. According to the U.S. Courts, the June 2006 figure is the lowest filings have fallen since the 12-month period ending September 2001.
The number of filings skyrocketed at the end of last year then sank in the first half of this year "due to households making short-term decisions based on the change in the law," he observed. Hampel did take the 10% drop between the year ending June 2006 and June 2005 as a positive sign. "But again, it will take a year or two for the dust to settle to evaluate if the reform legislation is having its intended effect," he remarked.
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Credit union-specific data provided by NAFCU Senior Economist Jeff Taylor showed bankruptcy filings at credit unions down significantly as well. Based on Call Report data, he said year-to-date federally insured credit union charge-offs due to bankruptcies have reached $376,138,817, less than half the total of all of 2005 when credit unions charged off $1,027,375,353 due to bankruptcies. The number of members filing for bankruptcy is also down with 56,004 filing in the first half as opposed to 342,643 in all of last year.
Federally insured credit union charge offs due to bankruptcies are just 0.16% of all loans. When asked whether the low percentage indicated if credit unions were taking enough risks or not on their members, Taylor replied, "In general [credit unions] always had lower numbers. I don't know…There is a debate there. I think it's worth looking at." Regardless, it would take a lot of educating of examiners and board members to take on more risk, he said.
Despite the 12-month period overall bankruptcy filings being down, the quarterly data shows second quarter bankruptcy filings up to 155,833, above the first quarter's 116,771. But these data cannot touch the last quarter of 2005 at 667,431 filings in the rush up to the Oct. 17 effective date.
Chapter 7 filings, where debts are wiped clean, continue to comprise most of the filings. "The law is expected to eventually have the effect of converting Chapter 7 filings to Chapter 13s," Hampel said. "However, Chapter 13 filings are also way down in the first half of this year, but not as much as the Chapter 7s." Of the 54,734 bankruptcy filings in June 2006, 32,826 were Chapter 7s and 21,491 were Chapter 13s, compared to July 2005 when 101,894 of the 133,707 filings were Chapter 7s.
Personal bankruptcy filings continue to dominate, accounting for 53,118 of the 54,734 June 2006 filings. –[email protected]
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