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Bankruptcy Filings Set Record in 2005

January 11, 2006

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Bankruptcies jumped to a record number of filings in 2005 as consumers rushed filings to avoid changes to bankruptcy than became law October 17. The new information is the result of a survey released by Lundquist Consulting, an industry group that tracks bankruptcy statistics.

Bankruptcy filings increased 31.6 percent to 2.04 million with about one in every 53 households filing for bankruptcy, according to the survey. The number of consumers seeking relief from their debts through bankruptcy was at an all-time high in 2005.

Since the new law went into effect October 17, few consumers have used the new bankruptcy system, according to the consulting company.

The new bankruptcy law makes it harder for consumers to prove that they should be allowed to clear their debts in what's known as a "fresh start" Chapter 7 bankruptcy.

Chapter 7 filings, which provide consumers with the greatest relief of their debts, increased 47.2 percent in 2005, according to the survey. Chapter 13 consumer filings, which require consumers to repay a part of their debts, declined 7.9 percent.

Fewer than 2 percent of all 2005 filings came after the new bankruptcy legislation became law.

The largest number of bankruptcies in 2005 was in California, where filings rose about 36 percent to nearly 165,000.

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