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New Chapter 7 filings increase before a law takes effect on Oct. 17 that makes "fresh starts" more difficult.
By Cary O'Reilly / Bloomberg
U.S. personal bankruptcy filings in federal courts surged 18 percent in the three months through June from the prior quarter, as consumers rushed to beat the deadline for a new law that makes erasing debt more difficult, the Administrative Office of the U.S. Courts said.
The number of filings under Chapter 7 of U.S. bankruptcy law, designed to allow individuals to keep certain assets while remaining property is sold to repay creditors, jumped to 308,028 in the quarter, the office, which provides support services to the federal judiciary system, said in a statement today.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, supported by credit-card issuers such as MBNA Corp. and signed by President George W. Bush in April, debtors who earn more than their state's median income and can repay at least $6,000 of debt over five years won't be able to file for Chapter 7 bankruptcy. The law takes effect Oct. 17.
"The overall quarterly increase was primarily fueled by a surge in Chapter 7 filings," the office said in the statement on its Web site.
The total number of bankruptcies filed in federal courts in the year through June was 1.63 million, little changed from the same period a year before, the office said. Business filings declined 9.3 percent to 32,406 in the period.
Once the new law takes effect, consumers with incomes above their state's median will have to file for protection from creditors under Chapter 13 of the code, which requires repayment of a portion of their debt.
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