(Note: The following article is an excerpt from the U.S. House of Representatives Judiciary Committee Report 109-031. See the Full Text of House Report 109-031, with footnotes, from the U.S. Congress)

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 represents the most comprehensive set of bankruptcy reforms in more than 25 years. The new consumer bankruptcy provisions in the Act came as a response to several factors.

1. Increase in Bankruptcy Filings

The recent escalation of consumer bankruptcy filings does not appear to be just a temporary event, but part of a generally consistent upward trend. In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation's history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004. 

As a result of this trend showing increased bankruptcy filings, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort. Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors' control (such as family illness, job loss or disruption, or divorce) the U.S. House of Representatives Judiciary Committee concluded that reforms were nevertheless necessary.

2. Losses Associated with Bankruptcy Filings

There are significant losses asserted to be associated with bankruptcy filings. As one witness explained during the Senate Judiciary Committee's hearing on the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 earlier this year:

Like all other business expenses, when creditors are unable to collect debts because of bankruptcy, some of those losses are inevitably passed on to responsible Americans who live up to their financial obligations. Every phone bill, electric bill, mortgage, furniture purchase, medical bill, and car loan contains an implicit bankruptcy 'tax' that the rest of us pay to subsidize those who do not pay their bills. Exactly how much of these bankruptcy losses is passed on from lenders to consumer borrowers is unclear, but economics tells us that at least some of it is. We all pay for bankruptcy abuse in higher down payments, higher interest rates, and higher costs for goods and services.