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June Sees Big Drop in Bankruptcy Filing Rate

posted by Bob Lawless

The U.S. daily bankruptcy filing rate dropped in June by 8.9%, the second-largest monthly drop since 2006. Although bankrupt debtors filed approximately the same number of cases in June as May (about 133,000 - 134,000), there were two more business days in June meaning the daily filing rate actually declined. On a year-over-year basis, June 2010 was a 6.6% increase from June 2009, but this is the lowest year-over-year increase since the wave of cases from the 2005 changes to the bankruptcy law worked their way through the system.

These latest data provide the strongest evidence yet that the U.S. bankruptcy filing rate may be leveling off after nearly five straight years of steady increases. As always, many thanks to Automated Access to Court Electronic Records (AACER) for providing the latest statistics.

Careful analysis suggests a few important caveats to the latest figures. First, there may be something about June that is correlated with declines in bankruptcy filing rates. The daily bankruptcy filing rate also decreased in June 2009 and was flat in June 2008 and June 2007. Decreases in June of these years were precursors to increases later in the summer and throughout the fall. If 2010 sees the same pattern, the drop in June may prove to be a temporary blip.

My second caveat relates to the way this sort of news is usually received in the press, which is as some sort of indicator about overall economic conditions. A drop in the bankruptcy filing rate hardly means that the U.S. economy is hunky-dorey. At best, bankruptcy filing rates are a weak and trailing indicator of economic conditions. People struggle a long time financially before filing bankruptcy--many for more than two years according to our research--they do not show up in bankruptcy court the day after losing a job or getting a big medical bill. In fact, the expansions and contractions of consumer credit have a lot closer relationship to bankruptcy filing rates than unemployment rates. Some of the weakness in bankruptcy filing rates may be attributable to the fact that people were borrowing less two years ago when consumer credit all but dried up. Without the borrowing then, there is less demand for bankruptcy now.

2010 Projected Filings Thru June My third caveat is my usual caveat about relying on one month of data rather than longer term trends. Nonetheless, the long-term trend does suggest the U.S. filing rate is leveling off around its usual historical annual level of around 5.2 to 5.4 bankruptcies per thousand persons.

Traditionally, I close these posts with an updated estimate for calendar year filings. Specifically, 2010 calendar year bankruptcy filings will be:

  • 1,600,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (6,347 per day) as they have averaged for the first six months of 2010
  • 1,638,000 filings if bankruptcy filings continue for the same daily rate (6,084 per day) as they have averaged for June 2010
  • 1,641,000 filings if bankruptcy filings for the remaining six months of 2010 constitute the same proportion of total filings as the last six months of 2009 constituted for total filings that year (about 51.6%)


Empirically, I noted a drop in my personal filings, and even retentions, in June, but this abated quite substantially last week (the week of June 28-July 2). My client trust account balance rose over 10% last week alone, indicating that I will be making a significant increase in filings in July. I have noted that my client intakes seem to ebb and flow with traditional "family" times -- such as holidays and vacations. June, of course, brings the end of school, graduation parties, and even vacations. Somehow, my clients always seem to be able to squeeze such things in right before coming to me.

Another thought on month-to-month noise. There was a significant improvement in mortgage delinquencies early in the year, perhaps due to tax-refund season and HAMP going into overdrive. But these effects are in the process of reversing. In other words, just looking at the mortgage market, I'd expect a leveling off of personal bankruptcies in the second quarter but quite possibly a new rise in the second half.

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