NEW YORK (MainStreet) — There is some upbeat news on the bankruptcy front: The American Bankruptcy Institute reports that U.S. consumer bankruptcy filings dropped by 10% in the first nine months of 2011 from the same period a year ago.

“The trend of declining filings has been consistent with consumers continuing to reign in their spending, household debt and an overall pullback in consumer credit,” said Samuel J. Gerdano, ABI executive director, in a statement. “Total consumer filings for 2011 will be less than 2010.”

But could the news on bankruptcies have even been better? Yes, suggests one new academic study, which says that U.S. household bankruptcy rates would have declined 25% in recent years if 1970s-era consumer credit rules were still in existence.

The study, from the University of Iowa, looked at credit limits that were still active in the 1970s and applied them to 2,400 Americans who filed for bankruptcy in 2007. Lead researcher Kevin Leicht, a sociology professor at the university, applied 1970s-era credit and ending rules, like mortgage approval amounts only on 30% on borrower incomes, car loans of no more than 10% of incomes, and a single credit card with a $1,000 limit.

If such regulations were still in place, the Iowa study says that Americans wouldn’t have had the financial latitude to get in over their heads in the first place. Leicht places an actual number on those limits, estimating that 25% of those 2,400 U.S. families would have avoided bankruptcy, and those families would have spent a significant amount of cash – $667 – on monthly debt payments.

“Families in bankruptcy today struggle with hundreds of dollars more in monthly payments than the prior generation could have ever borrowed,” Leicht said in a statement. “They are stressed by debt burdens that would have been unthinkable, not to mention illegal, under regulations that existed just three decades ago.”

Only 50 years ago, consumer bankruptcies were relatively rare. The Iowa study says that only 110,000 bankruptcies were filed in 1960 compared to 1.1 million in 2010. While those numbers have ebbed and flowed throughout the last half-century, the long-term trend right now is for more bankruptcies.

“Bankruptcy is cyclical, but the trend has been decidedly upward,” said Leicht, who blames government rules that relaxed consumer lending standards back in the 1980s and 1990s for the bankruptcy mess.

“The expansion of credit made possible by deregulation enabled families to maintain the image of middle-class respectability even as they struggled to stay afloat,” he added. “We loan people money for consumption, which means they’ll keep buying products even if employers don’t pay them well.”

The only way out of it is if Americans' incomes rise and if stronger rules and regulations are enforced on loose lending practices, the study says. But as any working American knows all too well, that’s easier said than done. Especially in an election year.

While bankruptcy will always be bad for your credit, there are other ways that the process is totally misunderstood. Check out MainStreet's look at Common Bankruptcy Myths Debunked for more!