MADELEINE BRAND, Host:
More than 2 million people filed for personal bankruptcy last year. That's a record, according to a new figure from the Administrative Officer of the U.S. Courts. The search in filings came as a new tougher bankruptcy law went into effect at the end of the year. Marketplace's Tess Vigeland joins us now to discuss this story, and, Tess, how much of an increase was this?
TESS VIGELAND: Well, Madeleine, this figure is about 30 percent more than the number of folks who filed for bankruptcy in 2004. That year, it was just over 1.5 million, and last year, as you said, it went over 2 million, 2,039,214 to be precise, and I spoke with Greg McBride, who's the Senior Economist at BankRate.com. He points out that the bulk of those filings did come just in the weeks before the implementation of that new bankruptcy law on October 17.
GREG MCBRIDE: This was not a surprise at all because of the fact that there was a real rush to file bankruptcy by the October deadline before the new, more stringent bankruptcy law took effect.
BRAND: And, in fact, the figures for the last quarter of last year show a huge surge in people entering bankruptcy, more than 560,000, and that's as opposed to 254,000 in the same period the year before, and remind us about this new law, the details in it.
VIGELAND: Well, the biggest change is that it eliminated the ability to automatically file for a Chapter 7 bankruptcy. That's the kind that essentially wipes out all of your debts. Anyone with an above-median income for their state is now subjected to a means test. A bankruptcy judge basically determines whether you're able to repay at least $100.00 a month. If you can, then you have to file for a Chapter 13 bankruptcy, and that basically puts you on a five-year repayment plan. The law also imposed higher fees to file, and it requires people to take credit counseling, which they also have to pay for.
BRAND: And, Tess, is there any evidence that the law is doing what Congress intended; that is, cracking down on people using bankruptcy to avoid repaying their debts?
VIGELAND: Well, it's kind of hard to say since we're still just in the first quarter of the new year, and McBride says we really won't know for a little bit now.
MCBRIDE: Maybe it's going to be some period of time before we get a real read on bankruptcy statistics because so many people rushed to file last year. I think it'll probably take much, if not all, of 2006 before we get a feel for what's the current breakdown under the new law and how people are filing.
VIGELAND: And coming up later today on Marketplace, we'll be taking a look at those new immigration bills moving through Congress.
BRAND: Thank you, Tess. Tess Vigeland of public radio's daily business show, Marketplace, and Marketplace is produced by American Public Media.
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