Downward Bankruptcy Filing Trend Continues

Bankruptcy filings for March continued to show a year-over-year decline. According to the latest release from Epiq Systems, there were an average of 5,550 daily bankruptcy filings in March, which represented a 12.8% decline from the same time last year. This decline keeps with the same trend we have been seeing for the past eleven months.

Extrapolating from the first quarter of 2012 and based on the experience of the immediate past three years, a projection for total bankruptcy filings this calendar year would be in the 1.21 - 1.25 million range. My projection of a 9 - 12% decline in bankruptcy filings for 2012 is somewhat higher than the projection from Fitch for a 4 - 5% decline. Although the Fitch projection is not outside the realm of possibility, it would require a historically unusual pattern where bankruptcy filings stay closer to their peak in the annual cycle that sees February and March as the months with the highest U.S. daily bankruptcy filing rate.

Comments

[Bankruptcy Judge]

Please tell us, Prof. Lawless, what we're supposed to conclude from these figures. They're national figures, so they don't say anything about what's going on in a particular district. (I have 700 more cases now than I had in December, no decrease in filings evident.) And even if they did, the figures concern filings, not pending cases, so they don't say anything about how much work courts (or lawyers) currently have. I've noticed a particular interest on your part (and on the part of the press -- it's not just you) in the latest filing statistics, but I honestly don't know why they're worth discussing. So -- fill us in, please. What significance do these figures have?

[Knute Rife]

We have a significant percentage of the population that has already been through BK or is in the middle of a Chapter 13 plan, another significant percentage that can't afford to file, and another significant percentage that has nothing to protect and for whom filing is pointless. If there is ever actually a turn-around, watch filings climb again as people file to stop wage garnishments.

[Bob Lawless]

Bankruptcy Judge, of course these are national figures, and "your mileage may vary" depending on your location. What significance do these figures have? Lots of possible reasons one might care about the bankruptcy filing figures come to mind. Here are few.

The practicing bar knows more about the demand for bankruptcy. We all know more about whether people are getting bankruptcy relief they might need -- the decline in the per capita filing rate after the 2005 bankruptcy law was probably not because people no longer need bankruptcy as much as they did before. Similarly, the lower bankruptcy rate today is a sign of looser consumer credit markets and not because the economy is doing great. The bankruptcy statistics do tell us about the workload for the federal bankruptcy courts as a whole. The patterns in the filing rate tell us a lot. The spring peak in filings is a reflection of people "saving up" to afford bankruptcy and tells us something about how people make a decision to declare formal bankruptcy. The bankruptcy filing rate tells banks and other businesses about the bankruptcy filing rate, because it give them some information about the collectibility of their outstanding accounts. Those of us interested in the policy side of bankruptcy and credit know more about the "big picture" because of all these hints the bankruptcy filing rate tells us about what is going.

Just because national rates are going in one direction does not mean that particular local situations follow the same pattern. Providing a separate analysis for each locale is obviously impractical for this blog, although we have sometimes highlighted particular local situations. In any event, I would guess that many of the specialists who read this blog already know about their local situation and come here looking for a policy-minded community that is focused on a broader perspective.

[Bankruptcy Judge]

Thanks for the response. I'll concede the validity of everything you say except your assertion that filing statistics "tell us about the workload for the federal bankruptcy courts as a whole." They don't, and the reason is pretty simple: filing stats are only about the initiation of cases, not about what comes after the filing date. It's what comes after that matters to courts and affects their work, not the filings themselves. And what comes after can vary greatly. Some cases disappear in a heartbeat. Other cases seem to go n and on and on. It's the ones that linger that make me wonder whether I can take a vacation this year -- or next year or the year after. And you can't distinguish too much based on chapter, either. I've had chapter 11 cases that disappeared in a heartbeat and chapter 7 cases that lingered for years. (Even now, I have an enormous chapter 7 case that's more than a decade old.)

So I'd be wary of drawing any conclusions about the plight of bankruptcy judges, even on a national basis, from how many cases were filed last month or last year.

[Bob Lawless]

Bankruptcy Judge, I think we're in agreement more than disagreement. The national filing rate tells us something about the workload of the bankruptcy courts. But, it does not tell us everything. Absolutely, we need to know more about the mix of cases the courts are seeing and what is happening in those cases.