Bankruptcy filings hit 18-year low

NEW YORK (CNNMoney.com) -- The number Americans filing for bankruptcy tumbled to its lowest level in nearly two decades last year - in part because filings had surged in late 2005 before a new bankruptcy law went into effect.

Last year, nearly 600,0000 individuals filed for bankruptcy, down 71 percent from 2005, according to statistics released Monday by the Administrative Office of the U.S. Courts. The last time bankruptcy filings were this low was in 1988.

Bankruptcy filings by businesses plunged by nearly a half last year, falling to their lowest level since 1980.

Those regions of the country that experienced the biggest drop in individual bankruptcy filing included parts of Louisiana, West Virginia and Oklahoma.

Samuel Gerdano, executive director of the American Bankruptcy Institute, a non-partisan research group, attributed the precipitous declines on a surge in bankruptcy filing at the end of 2005, when Americans rushed to file before the new law took effect.

"The final government statistics merely confirm what all in the bankruptcy world had already experienced: a historic drop-off in 2006 activity almost entirely due to the after-effect of the 2005 law changes," said Gerdano.

Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 in an effort to prevent consumers from abusing the bankruptcy system by clearing all their debts when they might have the ability to repay at least some of them.

So far the law appears to be working as intended by lawmakers. Last year, an increasing number of individuals filed for bankruptcy under Chapter 13 of the bankruptcy code, where individuals establish a payment plan with creditor. Before the new bankruptcy law took effect, the majority of Americans filed for Chapter 7 bankruptcy, where all unsecured debts were eliminated.

But while bankruptcy filings took a significant dip last year, many industry experts estimate that number will be back on upswing in 2007 in light of the recent fallout in the mortgage industry and the rising use of credit by consumers.

"(The) underlying economic condition are ripe for consumer bankruptcies to go back up," said Gerdano.

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