Last week, I discussed the significance of the 2005 amendments to the Bankruptcy Code, which greatly reduced the number of individuals who are eligible for bankruptcy protection.  However, Martin Merzer, former Senior Writer for the Miami Herald, has recently reported that bankruptcy filings have returned to pre-reform-law pace.  Mr. Merzer writes:  "It may have seemed like a good idea at the time, at least for lenders: a substantially fortified bankruptcy law that made it tougher for consumers to stiff credit card companies, banks and similar firms. And it seemed to work, significantly reducing the number of bankruptcy filings. Until the meltdown.  Now, pummeled by unemployment, foreclosures, the credit crunch and other manifestations of the worst recession in memory, Americans are filing bankruptcy petitions at rates approaching those that mounted before the new bankruptcy law took effect in October 2005."

     "That law was draconian, and it included huge disincentives to filing for bankruptcy," said Robert Lawless, a professor of law at the University of Illinois College of Law and a nationally recognized expert on bankruptcy rules, who was quoted by Mr. Merzer.  "So these numbers show that people are really hurting right now."

     Mr. Merzer further reports that 699,104 bankruptcy petitions were recorded in the United States during the first six months of this year. The vast majority were personal bankruptcy petitions, filed by hard-pressed consumers. In 2004, just before the more stringent rules took effect, 6,339 bankruptcy petitions were filed during an average business day. In 2006, with the law fully in force, the rate plunged to 2,372 per day. Now, Americans are flooding back into bankruptcy court at the rate of 5,593 per day. Per-capita rates have increased in virtually every state since 2007(see interactive bankruptcy statistics graphic), in many cases doubling or tripling.  "As unemployment, foreclosure rates and health care costs continue to rise, more consumers are turning to bankruptcy as a last financial resort," said Samuel J. Gerdano, executive director of the American Bankruptcy Institute, who was also quoted in Mr. Merzer's article.  Mr. Merzer suggests that the number would be even more striking if not for the 2005 amendments, which mandated higher filing fees, a means test for eligibility, an eight-year moratorium between filings, counseling programs and other measures.

-Drew Broaddus