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Are Bankruptcy Filings Highest at the End of the Month?

posted by Bob Lawless

Startofmonthfilingrates_2REVISED 3/19: Courtesy of Automated Access to Court Electronic Records ("AACER") come new data about the U.S. bankruptcy filing rate throughout a month. From January 2007 through February 2008, the average daily filing rate for the first 14 days of the month has generally been higher than for the entire month. These data would suggest that bankruptcy filings tend to clump at the beginning end of the month.

This is a completely revamped post on the topic. I had misread the data that were initially sent to me as showing the opposite. The clumping at the end of the month, rather than the beginning of the month, makes more sense to me.

It is still important to note that these data represent only 14 months of filings. Also, an end-of-the-month filing clumping, that is consistent with the general trend of an ever-increasing filing rate. Still, the end-of-the-month increases are higher than the overall monthly increases suggesting that general trend cannot explain all of the clumping effect. If bankruptcy filings do clump at the end of the month, the reasons for this clumping may help us understand the trigger of why people choose to file bankruptcy at a particular point.

Although the clumping may seem like it is coming at the end of a month, it may actually be a beginning-of-month effect. One thing to appreciate is that bankruptcy filings do not happen instantaneously at the moment someone first consults an attorney. In a completely unscientific survey this morning on the Bankr-L e-mail list (see signup instructions to the right), I asked bankruptcy attorneys for their estimate of the typical number of days that it takes for a routine consumer bankruptcy filing to occur from the moment of initial consultation to filing. Sixteen attorneys responded, and the median answer was about 12 days. Eight of the responses specifically mentioned the great variance in time, and five of the answers stressed that the date of the bankruptcy filing is often dependent on when the debtor can scrape together the money to pay the attorneys' and filing fees. In fairness, I should stress again that 12 days was only the median. The range was large, with two responses suggesting that the typical case took about six months from consultation to filing. The mode (or most common) response was 10-14 days.

If a routine consumer bankruptcy case actually starts with a visit to an attorney about 12 days before it was filed, then in many cases the end-of-month filings are coming from beginning-of-month visits to attorney office. This makes more sense to me than an end-of-the-month clump. My informal survey suggested that the availability of funds plays a determining role in the filing decision. I had a hard time understanding why consumers would have more funds available at the end of a month than the beginning. Conventional wisdom is that money tends to run out at the end of the month. If the data suggest bankruptcies start with a beginning of the month visit to an attorneys' office, that would make more sense.

Another thought occurred to me to explain the pattern and that was the means test. We know that people time their bankruptcy filing so as to minimize their past six-months of income and thereby pass the means test to qualify for chapter 7 bankruptcy. The problem with this explanation was that I could not see any reason why someone timing the means test would be more or less likely to consult an attorney at the end of a month or file bankruptcy at the beginning of the month.

At this point, I have as many questions as I have answers. Indeed, I really only have fourteen months of data. The pattern is strong and intriguing, however, and I thought it was worth pointing out. Comments, as usual, are open.

Comments

I have guessed that filings clump toward the end of a month. That is when I start seriously nagging clients, since rolling to a new month requires updating all of the Means' Test income numbers, which is time consuming and may cause unanticipated changes.

But there may also be a begining of the month effect if, for instance, I was waiting for an unusal month to drop-off the means test.

Yep, you were right. They do clump toward the end of the month. I had misread the data.

If we are talking bankruptcies in general 7 & 13 then 10-14 days sounds about right. If we are more specific say 13's only, consider that debtors want to file 13s before car payments are due; house payments if they have mortgage arrearage already; before credit card payments are due; etc... Why? Instead of paying those items they would have enough money to pay filing fees, attorneys’ fees, get credit counseling and still be able to pay light, car insurance and the like that have not come due yet. I think its more about budgeting than anything else and at least here in Texas home foreclosures happen on the first Tuesday of the month. People in general tend to procrastinate. That last explanation tends to lean more toward an end of the month filing. But it’s kind of different here in this office because we do make weekend appointments for filings. Thanks to ECF. (Not!)

I cannot comment on Chapter 7 activity, but the end-of-the-month spurt of filings is a well-establilshed pattern in Chapter 13 practice. It likely has more to do with attorneys than with debtors.

My informal survey of our local consumer debtors' bar indicates that the reason is driven by the Means Test. The disclosures on form 22 are based on data for the six months prior to the month in which the case is filed. On the first of the month, the information may change. There is a lot of pressure to get a case filed before the end of the month to avoid having to nag the debtor for new documents to ensure that those disclosures are current and accurate.

Probably the attorneys are paying the filing fees out of the general account and they have rent due at the first of the month.

Troy

An end-of-month clump tends to happen in my office because we don't want to get into the next month and need to update the means test. I once took a sampling of my filings and looked at the time between consult and filing. I found that they clustered. About half filed within 2 months, and half took a lot longer, often 6 months or more.

One contributing factor to volume swings early in the month is Texas which has already been cited and Georgia since these states have a designated time for forclosure proceedings once a month so there is a spike influence usually the second week of each month.

I concur with the desire to avoid the changing of payroll info on the means test is the primary motivator. From my practice, my staff gets far behind when they have to update payroll info from the month just past. We intentional set dates for our clients to complete counseling and document review 7 days before the EOM. We set signing appts., and then file in the last 3 days of the month.

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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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