Bankruptcy Filings Drop for 13th Consecutive Month

On a year-over-year basis, the U.S. bankruptcy filing rate dropped for the 13th consecutive month in November. According to statistics from Epiq Systems, Inc., the November daily bankruptcy filing rate was 4,923, a decline of 12.5% from one year ago. November marks the first time that the daily bankruptcy filing rate has dropped below 5,000 since January 2009.

Although the past seven months have seen double-digit year-over-year drops, these drops have consistently stayed between 10-17%. In other words, there is no increase in the rate of decrease. Extrapolating from this trend, we simply would expect to see about 10-17% fewer filings over the coming year than in the past year. Whether this trend continues, however, will depend principally on the ups and downs of the consumer credit market (not unemployment or foreclosure rates as conventional wisdom holds). In the next few weeks, I plan to be do my annual and slighlty more formal analysis of how these variables might interact and come up with a projection for 2012 U.S. bankruptcy filings.

The chart to the right shows the daily bankruptcy filing rate since 2004. (Clicking on the chart should open up a bigger version in a pop-up window.) The red line running across the middle of the chart is the daily filing rate in 2004, which allows for comparison between current filing rates and the filing rates prior to the 2005 changes in the bankruptcy law. The figures are population adjusted (using November 2011 as the base rate) such that the chart shows the daily bankruptcy filing rate after controlling for population growth. In 2004, the U.S. had 5.44 bankruptcy petitions per 1,000 persons. For the past twelve months, we have averaged 4.46 bankruptcy petitions per 1,000 persons. After accounting for the fact that the U.S. is almost 7% bigger now than it was in 2004, the per capita bankruptcy filing rate has dropped by 23%.

Comments

[rjs]

improving bankruptcy filings may be masking a more serious problem...according to LPS, 1 in 8 homeowners arent making payments on their mortgages, & 4.29% of all mortgages were in the foreclosure process, with the average number of days that homes in foreclosure had gone without making a house payment at a new record of 631 days...

[Bankruptcy Judge]

Prof. Lawless and others are fascinated with the most recent filings. Maybe they are fascinating, and maybe they say something about the state of the economy -- I don't know. What they don't say, though, is anything about the work of bankruptcy courts and bankruptcy judges who are still dealing with fallout from the onslaught of cases in years past.

Professor Lawless never claimed otherwise, of course. But I think it's worth noting, just in case the point gets lost in all the fuss over the filings themselves, that loads of things happen in bankruptcy cases after they're filed, and lots of today's filings will be next year's pending cases -- and the pending cases in the year after that and sometimes even five or ten years down the line. And while those cases are pending, still more cases will be filed. And on and on.

[Knute Rife]

Why are filings down? If you ain't got nothin', you got nothin' to lose.