Bankruptcies Maintain Similar Month-to-Month Rate in January

The January bankruptcy filing basically held steady to December, according to the new bankruptcy statistics now available from Automated Access to Court Electronic Records (AACER). There were just over 102,000 total bankruptcies spread over the nineteen business days in January. That is a daily filing rate of 5,386, a rise of only 1.3% from December's daily filing rate of 5,319. For monthly bankruptcy filing rates, a 1.3% increase probably does not rise above the threshold of statistical noise.

The January 2010 rate is a 20.6% year-over-year increase from January 2009. That may sound like a hugely impressive annual increase, but regular Credit Slips readers will know better. To keep the 20.6% year-over-year increase in perspective, consider that January 2009 had a 31.6% year-over-year increase compared to January 2008 which in turn was a 21.3% increase as compared to January 2007. It's not that double-digit increases in the bankruptcy filing rate are something to be sanguine about. Rather, the rate of increase in the rate of increase appears to be slowing. As the graph shows (click for a larger view), the year-over-year increase started slowing in August of last year. I attribute this slow down to the filing rate just catching up with its "natural" level after the trough following the 2005 changes to the bankruptcy law rather than any fundamental changes in the economic situation.

With one month of data, it is way too early to be making too many projections about annual U.S. filings. When I ran the numbers for January 2010, however, I noticed that the month of January constituted 6.4% of the bankruptcy filings in 2008 and 6.2% of the bankruptcy filings in 2009. Do two years of relatively consistent January numbers make for a trend? If so, then the January 2010 data suggest total annual bankruptcy filings will be 1.60 to 1.65 million. That would be just below my estimate of 1.70 million (or slightly more) filings for 2010.

Comments

[AMC]

Just came across Katherine Porter's (and Ronald Mann's) Law Review Article on "Saving for Bankruptcy". It confirms the idea (that I have posted here several times) that it is the tax refunds that drives the spike in filings in Late February/March/April and not the arrival of Christmas bills.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1540216

"Second, the primary factor that affects the date on which people actually file is their ability to save up the money to pay their attorneys and filing fees. Thus, among other things, we see an annual peak shortly after families receive their tax refunds. . ."

Is there, perhaps, going to be blog post on the article? (hint, hint).

In any event, you should probably see those tax refund fueled filing increases before you project 2010's filings.

[Credit Solutions]

Can you tell me more information of Automated Access to Court Electronic Records (AACER)?

[Jim Fickett]

Is there any way to tease apart different causes for the changes in filing rate? You say, "I attribute this slow down to the filing rate just catching up with its "natural" level after the trough following the 2005 changes to the bankruptcy law rather than any fundamental changes in the economic situation."

On the other hand, the Senior Loan Officer Survey shows that tightening started in early 2007, peaked in 2008, and is almost done now. Might that not help explain the acceleration and deceleration in filings? Also the jobs situation, which is not getting better yet, but is at least no longer getting worse.

Jim Fickett
ClearOnMoney.com

[Patches]

OH YA. Tax refunds especially now that a ton of people are out of work; just receive unemployment; or have just stopped receiving unemployment. I just don't know if that is a good enough incentive here in Texas? I think it is a factor here but maybe more of one in states like Georgia where they can garnish wages.

[Bob Lawless]

A few responses:

(1) The Mann & Porter article on the bankruptcy filing cycle is very good. I recommend it. (See link above).

(2) On waiting for projections until we see the effect of this year's tax-refund fueled filing increase, I'll demur. I cannot think of any reason to expect that the effect of this year of tax refunds will be any different than other years. The projection I mentioned in this post and did in a previous post takes into account the ups and downs of the bankruptcy rate through the year.

(3) Teasing apart different causes? I wish. The bankruptcy filing statistics just report the number of bankruptcies filed plus some very basic characteristics like whether it was a human being or a corporation or whether it was a "commercial" filing. In any event, it's difficult to ascribe a reason in many cases -- e.g., someone files with medical bills they can't pay because they got laid off and had a pending foreclosure (medical or job loss or housing or all of the above)?

(4) The filing rate has been going up since January 2005, well before the financial crisis hit. Certainly, I suspect that the filing rate is higher than it would be because of the financial crisis, but I think the primary driver of the increase is a return to the "natural" per capita filing rate in the U.S.

[Kathryn Tokarska]

Tax refunds are the culprit for the upswing. I've been sitting on dozens of cases since July 2009. The calls are now pouring in because these clients now have the money to pay me to file their case.

[Patches]

I like your blog "Student Loan Debt, The Next Great Bubble" Kathryn. I wanted to comment but could not for some reason...??

[AMC]

"(2) On waiting for projections until we see the effect of this year's tax-refund fueled filing increase, I'll demur. I cannot think of any reason to expect that the effect of this year of tax refunds will be any different than other years. The projection I mentioned in this post and did in a previous post takes into account the ups and downs of the bankruptcy rate through the year."

Ready to reconsider?

http://www.nytimes.com/2010/04/02/business/economy/02bankruptcy.html

Sharp Increase in March in Personal Bankruptcies

By DUFF WILSON
Published: April 1, 2010

More Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened in October 2005, a new report says, a result of high unemployment and the housing crash.

Federal courts reported over 158,000 bankruptcy filings in March, or 6,900 a day, a rise of 35 percent from February, according to a report to be released on Friday by Automated Access to Court Electronic Records, a data collection company known as Aacer. Filings were up 19 percent over March 2009. The previous record over the last five years was 133,000 in October.

[Bob Lawless]

Actually, no, I don't want to reconsider. I'll have a more detailed analysis up in a moment, but the increase is very much in keeping with historical cyclicality and recent trends.