How many consumers are actually bankrupt? According to projections within the latest research from the New York Fed, many more consumers could be bankrupt than statistics show.
In 2011, according to statistics released by U.S. courts, there were 1,571,183 bankruptcies. In 2009 and 2010 there were 1,202,395 and 1,531,997 bankruptcies respectively.
But these numbers may underestimate the reality of consumer bankruptcies: many more consumers could be bankrupt but unable to declare bankruptcy because of the 2005 bankruptcy law changes that make filing more complicated and difficult. Just look at the chart below, created by New York Fed researcher Donald P. Morgan. He writes, “The model predicts filings should have accelerated in response to contracting income but, in fact, they basically leveled off and eventually contracted.”
The story told by the chart is simple: without the 2005 bankruptcy law, which makes it harder for the consumer to file for bankruptcy, the U.S. bankruptcy rate would be as much as six times higher than it is. Currently the bankruptcy rate is slightly higher than 2 fillings per 1000 households; it would be closer to as many as 12 filings per 1000 without the law. Without the 2005 bankruptcy code changes, the number of bankruptcies could have reached as many as 7, 214, 370 million in 2009; 9,191,982 in 2010 and 9,427,098 last year.
Whether the true bankruptcy levels are that high remains unknown, but one thing is certain, there are millions of consumers who are bankrupt but can’t file bankruptcy because the bankruptcy law makes that too complicated and too costly for them.