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More Than 4,000 Bankruptcy Filings Per Day in March

posted by Bob Lawless

For the first time since the 2005 changes to the bankruptcy law (BAPCPA), the U.S. bankruptcy filing rate went above 4,000 per day in March 2008. There were 90,288 total bankruptcy filings spread over twenty-one business days in March for an average daily filing rate of 4,299 bankruptcy filings. The March 2008 filing rate is an 8.6% increase over the previous month (February 2008 with 3,969 filings per day) and a 29.4% increased compared to one year previously (March 2007 with 3,322 filings per day). As always, these statistics come courtesy of Automated Access to Court Electronic Records (AACER).

2008_filings_per_day_thru_mar As I update the monthly filing figures each month, I always sound a cautionary note not to put too much emphasis on monthly fluctuations in bankruptcy filing data. It's the long-term trend that should concern us, and that longer view is showing an that bankruptcy filings appear to be climbing steadily. Last December, I wondered whether if the increase in the filing rate was beginning to level off, but that leveling off appears now to have been temporary. The average daily filing rate for the first quarter of 2008 (3,870) is 26.2% higher than the same period in 2007 and an 8.4% increase over the last quarter in 2007.

Looking forward, we can make some projections for the year 2008 based on these first three months. How many bankruptcy filings will we see in 2008?:

  • 975,000 filings if filings continue through the rest of 2008 at the same daily rate they have averaged for the first three months of 2008
  • 1,057,000 filings if filings continue through the rest of 2008 at the same daily rate they averaged in March 2008
  • 1,061,000 filings if filings after March 2008 represent the same proportion of filings (about 77.3%) as the filings after March 2007 represented of the total 2007 figures

I also performed a slightly more sophisticated forecasting technique (a structural vector autoregression as explained in this post) that projects a future trend using the past data. My model accounts for historical monthly cyclicality but little else. Although past performance is no guarantee of future returns, that is essentially the technique. Using this forecasting technique, I get a projection of 1,036,000 total bankruptcies for 2008 with a 95% confidence level of between 856,000 - 1,215,000 filings.

Those are pretty much the facts. I'll leave it to the comments to help me figure out what this all means.

Comments

I think someone commented on a past post that the ease of credit in the past 3 years provided somewhat of a dampening effect when it came to foreclosures. I think there may be something to that logic. People were able to easily refinance or make home equity loans, in turn paying off credit card debts and staving off foreclosures. I believe that the coupling of the passing of the “Bankruptcy Abuse Prevention and “Creditor” Protection Act” in 2005 and all of the easy credit did dampen consumer Bankruptcy filings. I think what we are seeing now is “Peter” coming back and saying “Pay UP bro!” People extended themselves even more and put their homes on the line by financing their credit card or unsecured debt over another 15-30 years via Home Equity loans and the like. Leaving room for …… more credit! Fast forward to today. Credit is not so easy and collectors are twice as aggressive. People earn about the same as they used to, maybe a little more but their dollar doesn’t buy as much as it used to. Gas, Milk, Bread, Electricity, Child Care ….. I think there was a book or article called “The living wage”? …. Well, today’s wages are not living up! I said it before; if consumers had more in their pocket they may have been able to afford all the new credit they received. We have been supper busy that’s for sure.

Just a little something to support my theory above:

Rich Yamarone, director of economic research at Argus Research, told The Boston Globe last month. "There's nothing really worse than having a job, making money and forking most of it over just so you can have the same amount of food. You're running in place, and it really weighs on you."

I would expect to see the numbers accelerate especially in the fall as more consumers hit the wall as life tightens following summer vacations and back to school expenses. If anything, what I'm seeing out here is a delay in taking action that is just building bankruptcy back pressure.

Oops. Forgot to mention that I recently wrote about the need for more people to go bankrupt. See http://creditdebtlife.com/735/

Any idea what the distribution is on a monthly basis between ch. 7 and ch. 13? what about business vs. non-business? I think that the upward slope represents a lag effect between when credit became difficult and the when the consumer's finances went from tight to broke. The Consumer used to bail themselves out with a new financing when things got tight and now they are forced to watch their balance sheet deteriorate month after month hoping for a miraculous return in asset appreciation to help bail them out. December bankruptcies appeared optmistic only because people wanted to buy Xmas and New Years gifts for their family before turning their assets to the courts; therefore, I think that we could be looking at a 5-10% sequential climb in bankruptcies month over month through the end of the year.

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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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