How Many People Filed Bankruptcy?

It's bankruptcy filing statistics day! The Administrative Office of U.S. Courts ("AO") released new bankruptcy statistics today (August 28). On their face, these data show that there 155,583 bankruptcy filings for the three months ended June 30, 2006 (compared to 467,333 for the three months ended June 30, 2005). There were 1,164,815 1,484,570 total bankruptcy filings for the twelve months ended June 30, 2006 (compared to 1,196,212 1,637,254 for the twelve months ended June 30, 2005). Thus, the AO numbers show bankruptcy filings decreasing substantially in the second quarter of 2006 as compared to the second quarter of 2005. The numbers show a smaller decline when looking at a twelve-month period.

Any way one slices the data, bankruptcy filings clearly are down since the 2005 bankruptcy law. If one annualizes the most recent quarterly data, the filing rate would be 620,000 per year. Monthly data from the AO shows 55,000 filings in June 2006. Annualized, that would be a filing rate of 660,000 per year. That would be far less than the 1.6 million annual bankruptcy filings before the 2005 bankruptcy law.

The filing trend is moving upward. Monthly AO data show the following since October 2005 as captured in the table to the right. After the initial surge, bankruptcy filings increased steadily, but the growth appears to have stabilized. If the figures since March represent a plateau, then bankruptcy filings will annualize at somewhere around 40% of what they were before the 2005 bankruptcy law. CardWeb.com reports monthly filings increased to almost 63,000 in July 2006, the highest of any month since the 2005 bankruptcy law. Doing data analysis in "real time" can be problematic. Are the July 2006 filings a one-time blip or the beginning of a long-term increase to a new filing level?

Persons who follow bankruptcy policy closely will note that the twelve-month statistics overlap with the October 17, 2005, effective date of the new bankruptcy law. In the few weeks before the law became effective, filings surged. The AO reports that there were 630,000 filings in the month of October 2005, presumably most all of which occurred before October 17. The surge makes it difficult, if not impossible, to understand what the twelve month statistics mean. On the one hand, many persons who filed in October 2005 undoubtedly represent persons who accelerated a filing that would have occurred later in 2005 or in 2006. In contrast, some of these filings may have been filings that would not have occurred at all. There is no way to know how many filings were accelerated and how many were ones that would not have occurred.

Finally, I have to comment on the AO's quarterly figures showing that 3.1% of all filings were business filings for the most recent quarter. In The Myth of the Disappearing Business Bankruptcy, 93 Cal. L. Rev. 745 (2005), fellow Credit Slips blogger Elizabeth Warren and I reported data showing that about one in seven bankruptcy filers either was self-employed at the time of bankruptcy or recently before bankruptcy, data strongly suggestive that business filers are a much higher percentage of filings than the official AO data indicate. Although the newest AO figures seem low (3.1% of all filings), they are about 50% higher than the rate that the AO was reporting prior to the 2005 bankruptcy law (about 2.0% of all filings). The 2005 bankruptcy law likely was a bigger deterrent to consumer than business filers. Moreover, one strategy to avoid means testing under the 2005 bankruptcy law is to have the case classified as a business case, meaning debtors have more incentives to make sure the case is counted as a business filing.

UPDATE (9/21/2006): Mea culpa. I wrote down the chapter 7 numbers instead of the total filings for the twelve months ended June 30, 2005 and 2006. I have made corrections above. The main points are unchanged.