Foreclosures and More Bankruptcy Filings

It is popular to assume the increases in the bankruptcy filing rate are tied to the home mortgage foreclosure crisis here in the United States. Is that really the case? I've checked the data, and it appears that it is.

The map to the right looks at individual federal judicial districts to show the increase in the average daily bankruptcy filing rate from the first four months of 2007 as compared to the first four months of 2008. I used a four-month average of data so that the results were not affected by any one month. The map shows all federal judicial districts where bankruptcy filings increased more than 20%. As always, the bankruptcy filing data are from our good and reliable friends at Automated Access to Court Electronic Records ("AACER"). Yeah, I know the map is hard to read, but clicking on the map should give you a pop-up window with a much bigger version. If that doesn't work, squinting is always an option, but you don't need to squint much to see the big patterns.

There are big increases in all four California judicial districts, with the eastern and central districts in that state showing increases over 80%. Nevada, Florida, Virginia, and Maryland all show large increases. Compare my map on bankruptcy filings to the map of foreclosure rates available from RealtyTrac, an online marketplace for foreclosure properties and a provider of data on foreclosure activity. The two maps show a similar pattern, although one must keep in mind the RealtyTrac map is a snapshot of foreclosure activity in the first quarter of 2008 rather than a comparison of 2008 to 2007.

A recent press release from RealtyTrac states California, Nevada, Arizona, and Florida posted the top foreclosure rates. All of these states have seen bankruptcy filings rise by more than 50%. The table provides the data underlying the bankruptcy filing rate map. (Again, clicking on the table will bring up a slightly larger and more readable version.) Another bankruptcy filing hot spot is the Eastern District of Virginia and the District of Maryland, matching RealtyTrac's map shows the D.C. area as another locale suffering a high foreclosure rate. Similarly, the relatively high increases in bankruptcy filings in Connecticut and Rhode Island seem to match up with RealtyTrac data.

There are some exceptions. Most obviously, the bankruptcy filing rates in Georgia have not increased dramatically from the first four months of 2007 as compared to the first four months of 2008. At the same time, RealtyTrac shows reports Georgia as having the fifth highest foreclosure rate in the first quarter of 2007 and a whopping 80% increase in foreclosure activity from the same time in the previous year. I do not have a good explanation of why Georgia would not fit the pattern of increased bankruptcy rates going hand in hand with increased foreclosure rates. Is there some novelty to Georgia foreclosure law that makes a federal bankruptcy filing less attractive as an option to save a home?

Comments

[Kelly]

I have some questions about this analysis.
First; You seem to imply that personal home foreclosures are related to filing bancruptcy in Federal court. Is that reasonable? Could there not be a strong correlation with businesses such as builders or suppliers of appliances etc. going broke when housing sales flop?
Second; Is there any breakout of what type bancruptcy this is? Chapter 7, or 11 or whatever or is this implied by it being in Federal courts?

[Cleber]

I think there are two way to conclude this correlation:

One of them is by statistics, as you’ve done. The second is by the balance shit’s mathematics.

Yes. If we sum all the balance shits of companies and from individual people (although these people do not use to do them) we got just one big balance shit.

As a unique one balance shit we can cancel the credits and correspondent debts.

This way we got assets that represents the entire earth plus all the circulating money. At the other side of the balance shit we got equities.

Once all the assets is initially considered in this model, the only way to increase equity is by profiting. Profit here implies to increase assets and equity.

So let’s analyze what is to increase assets:

We can evaluate up the actual assets and we can add new assets. Here, the evaluation process is equivalent to inflation and it will not be analyzed.

When analyzing new assets we need to discount depreciations on the old assets. It means that when we add a new computer at balance shit we need to depreciate a fifth of five computers. This way we need ever to increase the number of new computer related to discarded old ones to increase assets value and generate some profit. Almost all things produced by the mankind have five years depreciation.

But when we look to real estate it is a little different. When we transform rural areas to urban areas there is no depreciation. The building has 25 year for total depreciation.

This difference is a powerful profit generator.

When we look to some items related to GDP as services we can notice that they are not profit generator at a whole economy, as we use to realize. There is no “hair cut” registered in any balance shits. The services use to distribute profits among balance shits. But when we look to the sum of all balance shits we can notice that they’re not generating any contribution to the whole profit.

So I think the real estate development is directly related to companies’ profits.

Finally, in my opinion, the areas near positive development of real estate tend to get more profits and the companies close to negative real estate development areas tend to increase the bankruptcy statistics.

P.S. This is short and very simplified explanation to demonstrate the influence of real estate to bankruptcy filings.

[Warner Mariani]

CNN reports that foreclosures are up 120%.