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July Bankruptcy Filings Rise, But Look at the Big Picture

posted by Bob Lawless

Monthly Bankruptcy Filings.Aug 2009 to July 2010The folks at Automated Access to Court Electronic Records (AACER) sent over the July bankruptcy figures. Total U.S. bankruptcy filings in July (134,600) were about the same as they were in June (133,900). There was extra business day in July, however, meaning that the daily filing rate, rose 5.3% to 6,408. The year-over-year increase in the daily filing rate was 7.7%.

Regular readers know that I am skeptical of reading very much into the ups and downs of the monthly filing rate. If you had looked at the June fiing rate, you would have seen an 8.9% drop in daily bankruptcy filings and perhaps concluded the economy was beginning to turn around. The July increase might lead you to the opposite conclusion. The most informative analysis comes from taking a longer term look at the data. And, there is my usual caveat that bankruptcy filings are, at best, a weak and trailing indicator of overall economic strength.

The table shows the daily filing rate for the past twelve months. The annual pattern has pretty much stayed the same since the 2005 bankruptcy law took effect. For example, the July 2010 filing rate is below what it was in March 2010--this also was true in 2009 and 2008. Also, June is typically a month of lower bankruptcy filing rates (although I have no idea why). The basic annual pattern has been a large surge in filings in the early part of the year followed by steady or slightly declining rates for the remainder of the year. My conclusion from the data is that the bankruptcy filing rate in 2010 is going about the same as it did in 2009, 2008, 2007, and 2006. The ups and downs in June and July are just noise.

Turning to projected bankruptcy filings for all of 2010, my initial estimates were around 1.65 million. I am starting to think that figure is a little bit too high. My estimate for total calendar year filings is between 1.60 and 1.62 million filings. Specifically, total U.S. bankruptcy filings for 2010 will be:

  • 1,602,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (6,357 per day) as they have averaged for the first seven months of 2010
  • 1,607,000 filings if bankruptcy filings continue for the same daily rate (6,408 per day) as they have averaged for July 2010
  • 1,617,000 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 57.4%)

To get to 1.65 million filings for 2010, they would have to average 6,810 per day for the rest of the year. That is below the March 2010 rate, but we would have to have a large increase from the current filing rate to reach that number of filings. Given the pattern we have seen in past years, it seems unlikely that we would see such a huge increase for the rest of 2010.

Comments

Further muddied by what looks like a secular upward trend in filings following the 2006 drop-off.

From 1996 - 2004 there were between 1 mil and 1.5 mil annual consumer filings. The 2005 spike was clearly bringing forward 2006 filings.

One hypothesis is that the profession has steadily increased the number of BACPA-competent attorneys during a transitional period. BACPA didn't outlaw insolvency; it just muted its expression. Hard to tease out all of the major causes with a five-year data set to work with. Should be interesting to see whether annual filings fall back below 750k or continue to remain in the pre-BACPA range.

See:
http://www.abiworld.org/bkstats/historical.html

Sorry, meant to type fall below the 1 mil mark.

I have suspected (and anecdotally experienced) that some of the consumer bankruptcy filing rate was a lagging indicator of economic trends. Thus, if the economy (read "jobs") improves, then you could expect an increase in filings to follow as consumers, burdened with debt accumulated during a period of unemployment, now seeks to protect themselves from garnishments and attachments. Is there any empirical data to support this theory?

I think Hank has a good point and I believe there is a correlation between unemployment and bankruptcy filings. While my analysis tracking over the years lacks a sophisticated data reliability, the lag time of three months compared to new filings does seem to trend consistently. I am presently looking at a possible influence of the % of unemployed 27 weeks or more in June 2007(17.0%) versus 45.8% in June 2010.

Henry and Raymond,

It's interesting -- if you look at the ABI link in my comment above -- the national annual numbers don't appear to correlate with recessions. Look at the early-mid '80s, '90s, and 2002. Visually, there's nothing that jumps out in the national numbers. Bob's projected 2010 number of 1.6 million won't show as a sudden spike but as a return to pre-BACPA levels.

An essential problem is that it's hard to establish baseline demand for personal bankruptcy and pre- and post-BACPA are apples-to-oranges (or are they?).

Mr. Hildebrand,

I think that's a reasonable projection given 1) that a return to work means a return to a garnishable revenue stream, and 2) creditor-friendliness of garnishment laws are the principal controlling factor for jurisdictional differences in filing rates according to a recent BYU study.

Thank you for the statistics. But I believe we should also discuss what contributed to this continued rise of bankruptcies. I personally believe it is the cause of the continued economic downtown, the sagging real estate market. Many people equate "personal wealth" with the value of their homes. When their homes are not worth as much, they tend not to spend as much. And by the same token, those who have purchased their homes at the high prices see the values of the homes dropped significantly, some even to the point where their homes are actually not worth what they are paying for. It is because of this disparity of the home prices that more bankruptcies are being reported. I came to this conclusion through personal experience with bankruptcy. Read my story at http://tofilebankruptcyornot.com/about-us/

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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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