The Bankruptcy Crisis

Abstract

Americans love records, statistics, and amazing numbers. Home runs, rushing yardage, presidential-approval ratings, smoking-related deaths, and murder rates-all offer great material for attention-grabbing headlines. In 1996, the bankruptcy system stepped into the spotlight by supplying an attention-grabbing number of its own: more than a mnillion bankruptcies were filed in a single year.' The filing rate had increased sharply over the previous year, but this was nothing new. Rather, the magic of "one million" made bankruptcy a newsworthy subject to be covered in virtually every newspaper, news magazine, and national television news program during the year. Bankruptcy, like baseball and publicopinion polls, had become a sport of numbers, perhaps not widely understood, but the subject of breathless reports, as the benchmark of a million-plus consumer filings was passed. The million-filing mark might have been a short-lived subject for the popular press but for one factor: the filing rate gave the credit industry an opportunity to plead its case publicly that Congress should significantly restructure the bankruptcy laws. The fact that one million families filed for bankruptcy signified a crisis, namely that it is too easy to file for bankruptcy. The credit industry also offered the blueprint for a solution: make it more difficult for families to file for bankruptcy. Business bankruptcy filings are not part of the alleged crisis. Perhaps a robust economy or the increasing sophistication of parties to craft out-of-court workouts has kept the business bankruptcy system out of the news. Business bankruptcy cases account for only about four percent of all bankruptcy filings and the