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March Bankruptcy Filings Are Up But Not "Spiking"

posted by Bob Lawless

Media outlets are reporting that bankruptcy filings climbed sharply in March (see, for example, Duff Wilson's report in the New York Times or the Reuters wire story). Those reports are not wrong, but they don't tell the whole story. As always, many thanks to the ever efficient Automated Access to Court Electronic Records (AACER) for providing the data.

It is true that there were over 158,000 bankruptcy filings in March 2010, and it is also true that this figure represents a 35% increase over February. Long-time Credit Slips readers know the golden rule for monthly bankruptcy filing data: Thou Shall Adjust for the Number of Business Days in the Month. The total monthly bankruptcy filing figures are very sensitive to the number of business days in a month. In fact, since 2007, the number of business days alone explains about 30% of the variance in the month-to-month differences.

There were 23 business days in March as compared to only 19 in February. Once one adjusts for the number of business days, the March filing figures show a much less dramatic increase and an increase that is very much in keeping with both historical cycles and recent trends. March had a daily bankruptcy filing rate just under 6,890, which is a 11.6% increase from the February daily bankruptcy filing rate of 6,170. To put some perspective on the 11.6% increase, consider that February was a 14.2% increase over January. These increases are consistent with the historical cycle of filing rate increases early in the year. If the cycle holds again this year--and there is no reason it shouldn't--the rest of the year should have a relatively constant filing rate until late fall.

2010 March.Year over Year Changes Moreover, the rate of increase is slowing considerably. I've used the graph to the right before, but it seemed like a good time to update it (click on it to get a larger version). March 2010's daily filing rate was a 14.8% year-over-year increase, but consider that March 2009 had a year-over-year increase of 39.4%.

I do not want to be misunderstood. The bankruptcy filing rate has been going up, which is hardly a sign of a robust economy. The U.S. bankruptcy rate, however, is more sensitive to other factors, such as the amount of consumer credit outstanding than macroeconomic conditions. For example, the bankruptcy rate climbed steadily, during good and bad economic times from the mid 1990s through 2004.

 We're reaching the point where the bankruptcy filing rate will have to level off. The highest per capita bankruptcy rate was about 5.6 per thousand in the 2003-2005 calendar year. To reach that same per capita rate in 2010, we would need a daily filing rate of about 6,800. March 2010 pretty much hits that number right on the head. The last few quarters have actually seen a decline in the amount of outstanding consumer credit. In the short run, that decline is probably responsible for some of the increase in the bankruptcy filing rate because, as people run out of options to borrow, one of the places they end up is bankruptcy court. But, a decline of consumer credit should have a long-term effect of holding down the bankruptcy filing rate. With less debt, consumers have less2010 Projected Filings
 Thru March reason to file. We are likely reaching a saturation point for bankruptcy filings such that the rate may level off somewhere around its current level.

With three months in the book, we also can begin to look at projected filings for the 2010 calendar year. My prediction of around or just above 1.7 million is looking pretty good. At the time, I had said February and March of 2010 would give us big clues about how the rest of the year might go. The increases we have seen suggest we might get closer to 1.70 million than 1.65 million. Here are the projections for 2010 based on the numbers we have so far:

  • 1,566,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (6,213 per day) as they have averaged for the first three months of 2010 (Note that this estimate is almost certainly too low for an annual projection given the low January 2010 figure, and I have left it off the chart.)
  • 1,694,000 filings if bankruptcy filings continue for the same daily rate (6,888 per day) as they have averaged for March 2010
  • 1,689,000 filings if bankruptcy filings for the remaining nine months of 2010 constitute the same proportion of total filings as the last nine months of 2009 constituted for total filings that year (about 77.6%)

Comments

To put it in somewhat different perspective:

Since BAPCPA was passed in October, 2005, the previous highest filing month was 133,000 in October, 2009. A month with 31 days.

In March, 2010, there were 158,000 filings, beating the old post-BAPCPA one-month record by 25,000.

Yes, but October 2009 had two less business days than March 2010. Those two extra business days would account for over half of the 25,000 difference in filings. We seem to be having a debate over whether the increase is "huge" or "significant." I'm not trying to say that we should be sanguine about an 11.6% monthly increase in bankruptcy filings. Rather, it's just that when viewed in context and considered as a daily rate, the increases are not as high as they appear.

Regardless of how one characterizes the increases, the most important point is that we have hit the same high per capita rate as we had five years ago, before the Draconian 2005 bankruptcy law that greatly raised the cost of filing. That is a bad thing.

Apologies in advance for hijacking the thread but I have no idea where to go with this one...

What, if anything, can a debtor do when after making a formal request to their trustee, the trustee refuses to give the debtor their file?

I know of a current case where the promissory note was literally re-written by entities involved in the case to reflect a new note holder despite long standing case history and docket-entered evidence, the debtor was foreclosed after the stay lifted despite a standing written agreement with the previous note holder and servicer, and the debtor was given all of 10 MINUTES notice to vacate by local sheriff and REO agent.

Thoughts anyone? Please feel free to contact me directly if you would rather not comment publicly at contact at getdshirtz dot com.

In the modern attorney-client relationship, the file belongs to client. Attorneys can get into trouble for not turning over the client's file.

In contrast, a trustee's file belongs to the trustee. I think you can obtain discovery of the information in the file, but you can't just get the file. The trustee has an obligation to retain certain information for certain periods of time. Giving up the file itself is not something a trustee is going to want to do.

The problem may be in the way the request was made. If the debtor needs certain documents, the debtor should ask for copies of those documents. It wouldn't hurt to offer to pay for the copies.

If the trustee remains uncooperative, the trustee can be reported to the Office of the United States Trustee. If the trustee is doing something improper - in failing to cooperate - the OUST can more forcefully press the debtor's side. The Bankruptcy Code seems to contemplate different obligations to cooperate between Chapter 7 and Chapter 13 trustees. Chapter 13 trustees are required to give a certain amount of help to debtors. Chapter 7 trustees are positioned - intentionally in the Code - in a more adversarial position to the debtor.

As an alternative, trustees don't usually have a lot of stuff in paper files (if they even have paper files) that is not on the bankruptcy court's electronic docket. (Although it is possible that the debtor's case was pre-electronic filing in that district.) Proofs of claim are generally part of the electronic docket, and can be accessed using PACER, and printed off.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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