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Bankruptcy Rates Keep Falling, and I Have Run Out of Ideas for Headlines to Describe It

posted by Bob Lawless

2012 Projected Filings from AugustIn August 2012, the daily bankruptcy filing rate fell 13.7% on a year-over-year basis. We have had twenty-two consecutive months of year-over-year declines. Indeed, the daily filing rate in August 2012 was 26.4% lower than the same time in 2010.

Although the month of August was a decline in relative terms, it is probably worth bearing in mind that the absolute number of bankruptcy filings still represents a lot of households. Even with the decline, there were just over 104,000 bankruptcy cases in August or over 4,500 each and every business day. As always, these figures are courtesy of Epiq Systems.

It is hard to say when the decline will stop. The headline says it all -- I don't what else to say in these monthly posts other than that the daily filing rate keeps declining. My instinct is that bankruptcy filing rates will at least begin to level off in 12 - 24 months as more debt accumulates on household balance sheets, although that is again just an instinct coming from historical patterns and somewhat increased consumer sector borrowing.

Looking ahead to the rest of 2012, it appears we will have around 1.20 million bankruptcy filings. For there to be more filings than that, we would have to maintain the average for the first eight months of the year, but with bankruptcy filing rates declining, the lower end of of my estimates are probably the most likely outcomes.


Does that mean that Zywicki was right?

I think partly this reflects the lack of credit card issuance post-crisis, and also a lot of consumers still encumbered by pre-08 debts are having de facto bankruptcies where the creditors have just realized you can't get blood from a stone.

We may see a bump next year as the pre-amendment bubble hits the eight year mark. Other than that, there is nothing creating a floor. Financing and income are both increasingly of the "alternative" sort. Pawn shops hold the collateral and move it quickly, rendering BK useless. Payday loan borrowers don't file, typically because they have neither the means nor anything to protect. Even if you're in a state that allows wage garnishment (such as Utah), that doesn't mean much if there's no wage. If you ain't got nothin', you got nothin' to lose.

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