Consumer Bankruptcy Filings for 2005 Are Highest on Record

BURLINGAME, CA -- Lundquist Consulting, Inc., released it's findings that in 2005 consumer bankruptcy filings numbered over 2 million, up 31.6 percent from 2004, representing the highest number of filings on record. The dramatic surge in filings coincided with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S. 256), which was enacted on October 17, 2005.

Consumer bankruptcy filings for 2005 were 2,043,535, up from 1,552,967 in 2004. On an annualized basis, 1 in every 53 households filed bankruptcy. (Household numbers are based on 2005 estimates by the US Census.) Chapter 7 consumer filings, providing consumers with the greatest relief of their debts, increased 47.2 percent in 2005. Chapter 13 consumer filings, requiring consumers to repay a part of their debts, declined 7.9 percent.

Chris Lundquist, Founder of Lundquist Consulting, Inc., has over 15 years of experience in the bankruptcy industry, publishing high quality statistics and performing qualitative and quantitative studies on the subject. Lundquist Consulting statistics are quoted in research papers and media articles as well as used by government entities for policy planning and legislative support papers. Regarding the increase in 2005 filings, Mr. Lundquist stated, "The number of consumers seeking relief of their debts through bankruptcy was at an all time high in 2005, however, since the new law went into effect on October 17, relatively few consumers have used the new bankruptcy system. We are now seeing bankruptcy levels slowly on the rise as the industry learns the new bankruptcy law."

The total number of filings since the enactment of the legislation, on October 17, through December 31 was just over 38,000, representing fewer than 2.0 percent of all 2005 filings. Low filing numbers since the law's enactment can be correlated to the fact that many consumers filed earlier than they might have otherwise to take advantage of the old bankruptcy law. Since the enactment, the proportion of consumers filing Chapter 13 as compared to Chapter 7 has increased. Nearly 60 percent of all filings since October 17th have been filed as Chapter 13, as compared to about 30 percent historically under the old law. The new law requires consumers to be subjected to a "means test," requiring them to file Chapter 13 unless they meet certain debt and income requirements.

Growth in Consumer Bankruptcy Filings by Region (in percent)
Region 2005 : 2004
South (West) 26.8 : -0.1
South (East) 17.6 : -6.8
Pacific 34.3 : -10.6
Northeast 36.8 : -0.8
North Central (West) 42.4 : -2.8
North Central (East) 43.2 : -1.7
Mountain 32.3 : -0.6

All regions showed a significant increase in growth of filings for 2005.

The South (East) showed the smallest growth in filings at 17.6 percent, whereas the greatest increase was seen in the North Central (East) at 43.2 percent.

The rise in filings in North Central (East) was driven by Ohio, which increased 51.7 percent in 2005 and was ranked the second highest state in filing volume at 135,142.

The largest number of filings was found in California at 164,856, a growth of 35.9 percent from 2004.

The lowest filing growth was seen in South Carolina at 1.2 percent.

Smokey asks "If you're not helping people in the pre-foreclosure stage yet, now would be a great time to start."

California turns up the heat on small businesses

This is an update on a previous comment.

The California Franchise Tax Board is stepping up surveillance in response to pressure from the state's elected officials in Sacramento.

Check with your tax professional for details.

Smokey thinks that if you live in California, then the FTB wants you to register every company you own EVEN IF IT IS SOLELY DOING BUSINESS IN ANOTHER STATE. That way, the FTB can be sure that they can collect the $800+ every year as well as make sure that they can tax you on any income you make - from anywhere.

Don't forget - you need a good business reason to incorporate in a specific state. And avoiding taxes is not a good business reason.

The following is a copy of our previous post...

According to a recent article in the LA Times, California businesses are incorporating in Nevada, where there is no income tax. State officials call it fraud and vow a crackdown.“Forget complicated wire transfers to the Cayman Islands or secret Swiss deposit boxes. Californians who want to hide their money from tax authorities are increasingly opting for a simpler alternative: socking it away just over the state line. No need for savvy accountants or high-priced lawyers. Seminars, web casts and radio advertisements bray that it's easy to slash a California tax bill — or eliminate it altogether — by creating a corporation in Nevada, where there is no income tax on businesses or individuals. Set one up online with a few keystrokes and a $395 credit card payment! For a little extra, a Nevada mailing address, telephone number and bank account can be added. Promoters peddling the packages call it good tax planning. California officials call it something else: tax fraud. They say the cash-strapped state's coffers are being drained as even some of the smallest California businesses shift their profits into hastily created corporate shells in the Silver State.”“We want to catch this scam before it gets out of hand," said state Controller Steve Westly. "We think it will cost the state tens of millions of dollars if this continues.”Here is the full story.At Your Entity Solution, we don’t think that a Nevada Corporation is necessarily the only, or even the best answer to setting up a legitimate company structure that addresses your need to manage your tax burden and protect your assets from unwanted liability.Don’t forget – if it seems too good to be true, it usually is.Bye for now, time for a nap.Smokey Says - don’t take any rancid tuna.