Bankruptcy Filings Decline 6% in June

The most recent bankruptcy filing data from Automated Access to Court Electronic Records (AACER) show a 6.1% decline in the U.S. daily bankruptcy filing rate. The were about 124,800 bankruptcy filings in June which, spread over the 22 business days in the month, is a daily bankruptcy filing rate of 5,672. In May, the daily bankruptcy filing rate was 6,038.

I do not take the dip in bankruptcy filings as strong evidence that the end of the recession is just around the corner. First, there is the usual caution against reading too much into the ups and downs of a monthly indicator. Over the past eight months, the bankruptcy filing rate went up four time and down four times, although cumulatively the increases have been more than the decreases. (The daily filing rate is 11.7% higher than eight months ago.) Second, although the month-over-month figure is a decline, bankruptcy filings are up sharply on an annual basis. The June 2009 figure is a 32.5% increase over 2008. Over the entire year, projections show that 2009 bankruptcy filings will be 28.2% - 36.4% greater than 2008. As I discussed last month, the long-term trend is toward the same filing rate as before the 2005 bankruptcy law was adopted. Third, bankruptcy filings lag macroeconomic bad news. Yesterday's news about the jump in unemployment shows the U.S. recession is far from over, and those unemployed may show up in the bankruptcy courts much later. People do not run into bankruptcy court the day they are laid off. in our most recent empirical work from the Consumer Bankruptcy Project, more than 50% of bankruptcy filers told us they struggled for more than two years before filing bankruptcy.

Projecting forward, total 2009 U.S. bankruptcy filings will be:

• 1,404,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,593 per day) as they have averaged for the first six months of 2009
• 1,414,000 filings if bankruptcy filings continue at the same daily rate (5,672 per day) as they have averaged for June
  
• 1,494,000 filings if bankruptcy filings for the remaining six months of 2009 constitute the same proportion of total filings as the last six months of 2008 constituted for total filings that year (about 53.2%)

Comments

[John Doe]

The start of summer means there are fewer people in the offices to actually do the filings. The real news will be what happen when the lawyers come back to work in the fall.

[Bob Lawless]

The start of summer may mean fewer people in the office, but historically 6.1% is big decline for the month of June. Generally speaking--and this is a big generalization--bankruptcy filings climb in February and March and sometimes into April. Then, they stay flat with minor ups and downs until the late fall when they climb again. In December, there is usually a decline, and then the cycle starts anew.

[AMC]

This looks like selective use of post-BAPCPA statistics to me:

http://www.ncpa.org/sub/dpd/index.php?Article_ID=18175

U.S. MEDICAL BANKRUPTCIES A MYTH; PERSONAL BANKRUPTCY RATE HIGHER IN CANADA

The idea that large numbers of Americans are declaring bankruptcy due to medical expenses is a myth. Therefore, the introduction of government-run health insurance in the United States will do nothing to reduce personal bankruptcies, concludes a new study by the Fraser Institute.

The current debate about reforming U.S. health care policy has included suggestions that nearly two-thirds of personal bankruptcies in the United States result from uninsured medical expenses or loss of income due to illness. Advocates of socialized medicine argue that this would not occur if the United States adopted a government-run health system similar to Canada's. However, if socialized medicine played a role in reducing personal bankruptcies, we would expect to see a lower rate of personal bankruptcy in Canada compared to the United States.

To the contrary, says Fraser:

The personal bankruptcy rate was actually higher in Canada in 2006 and 2007 (0.30 percent for both years) than in the United States (0.20 percent and .27 percent).
Medical spending was only one of several contributing factors in 17 percent of U.S. bankruptcies -- medical debts accounted for only 12 to 13 percent of the total debts among American bankruptcy filers who cited medical debt as one of their reasons for bankruptcy.
Medical reasons were cited as the primary cause of bankruptcy by approximately 15 percent of bankrupt Canadian seniors (55 years of age and older).
Non-medical expenditures comprise the majority of debt among bankrupt consumers in both Canada and the United States; the inability to earn sufficient income to cover these costs -- not exposure to uninsured medical costs -- is the real explanation for almost all bankruptcies in either country.
Thus, bankruptcy statistics do not support arguments for a government-run, single-payer, socialized health insurance system, says Fraser.

Source: Brett J. Skinner and Mark Rovere, "U.S. Medical Bankruptcies a Myth; Personal Bankruptcy Rate Higher in Canada," Fraser Institute, July 7, 2009.

If this is true - that bankruptcy rate in Canada is higher than the U.S. - it appears to be a recent BAPCPA-related phenomena, and a temporary one:

http://www.bankruptcycanada.com/blog/canadian-and-us-bankruptcy-rates/

The US bankruptcy rate (6.9 per thousand) for the year 2004 is more than twice as high as the Canadian bankruptcy rate (2.6 per thousand). The main reason for the huge disparity in bankruptcy rates in Canada and the US is because of the different health care systems in the two countries.

http://www.bankruptcycanada.com/shorthistory1.htm

In Canada, from 1958 to 1971, the consumer bankruptcy rate was at a fairly constant level, and, for a modern industrialized country, the bankruptcy rate was at a very low level. For example, in 1968, Canada had six (6) bankruptcies per 100,000 population. The United States, in 1968, had ninety (90) bankruptcies per 100,000 population.

* * * * *
In 2004, the consumer bankruptcy rate in Canada was 2.7 per 1,000 population. This compares with the U.S. bankruptcy rate for the same period of 7.7 per 1,000 population.

But, compare:

http://www.bankruptcycanada.com/bankstats1.htm

The latest U.S. bankruptcy statistics for the year ended December 31, 2006 reports 598,000 (Note: 1) consumer filings. The U.S. population, projected to December 31, 2004, by the U.S. Bureau of the Census, is 297,000,000. This is a rate of 2.1 filings/thousand.
The latest Canadian bankruptcy statistics for the year ended December 31, 2007 reports consumer insolvency (bankruptcy and consumer proposals) filings of 99,282. Statistics Canada reports the Canadian population, projected to July 1, 2007 to be 32,976,000. This is a rate of 3.0 filings/thousand. Alberta has the lowest rate in Canada with 1.7 insolvencies per thousand.

http://www.americanprogress.org/issues/2008/06/bankruptcy_report.html

The bankruptcy rate is again comparatively high. The national annualized bankruptcy rate reached 2.7 filings per 1,000 people in the fourth quarter of 2007. This is a marked increase from the 1.5 rate in the first quarter of 2006 (right after the new law was passed), exceeds the bankruptcy rates of the 1980s, and is only slightly below the bankruptcy rates of the early 1990s.