Personal Bankruptcy Filings at Record Pace

Americans filed for personal bankruptcy at a record pace in the third quarter as rising unemployment and the stock market’s continuing plunge made it harder for people to repay debts.

Personal bankruptcies totaled 391,873 in the quarter ended Sept. 30, a 0.2% increase from the second quarter, according to data reported Monday. It was the largest number of filings for any quarter since the Administrative Office of the U.S. courts began keeping records.

That brought the number of such filings for the 12 months ended Sept. 30 to 1.51 million.

Americans had a record $8 trillion in personal debt, including credit card loans and mortgages, at the start of the third quarter. As debt has continued to balloon over the last two years, the jobless rate has risen and many Americans’ investment portfolios have shrunk.

“A lot of people have been laid off in the past year, and the amount of debt people are carrying relative to their incomes is very high,” said Jay Westbrook, a professor of law at the University of Texas at Austin. “That’s a path that will too often lead to bankruptcies.”

Meanwhile, business bankruptcy filings fell 2.7% in the third quarter, to 9,433. It was the third straight quarterly decline.

The rise in personal bankruptcy filings came amid expectations that Congress would pass a law to make it harder for high-income debtors to declare bankruptcy.

The measure unexpectedly failed to pass after the Senate earlier this month said it wouldn’t vote on a revised House-passed bill.

The legislation would have made it more difficult for debtors to file under Chapter 7 of the U.S. Bankruptcy Code, which allows consumers to cancel their debts. Individuals who make more than the median income in their state would have been required to pursue a Chapter 13 bankruptcy, requiring them to repay creditors at least some of what they’re owed.