Total Bankruptcy Filings Remain Low, Chapter 11s Not So Much

(Updated and corrected, 5/22). An earlier post noted that bankruptcy filings were down substantially over 50% the first two weeks of April. As the American Bankruptcy Institute reported, bankruptcy filings declined by 46% over the entire month and on a year-over-year basis. I wondered whether the expected increase in bankruptcy filings had begun, and the answer appears to be "not yet."

Using PACER docket searches, I get the following filing numbers for the past six weeks. The decline in filings for the first two weeks of May was roughly the same as the last two weeks of April. There were the same number of business days in all these time periods so the numbers should be comparable:

Total Bankruptcy Filings
	2019	2020	change
April 1 - April 15	33,017	16,097	-51.2%
April 16 - April 30	38,289	22,347	-41.6%
May 1 - May 15	31,958	18,578	-41.8%

Chapter 11 filings have been seen as a different story, with many persons (including me) thinking they will more immediately increase. That seemed true the first two weeks of April, but not since:

Chapter 11 Bankruptcy Filings
	2019	2020	change
April 1 - April 15	273	405	+48.4%
April 16 - April 30	197	186	-5.6%
May 1 - May 15	306	334	+9.2%

The thing about chapter 11 filings is that they are tricky to count. Each subsidiary of a corporate group gets counted as a separate filing such that one corporate group can artificially inflate the filings. For example, the bankruptcy filing of Frontier Communications appears to have counted for over 90 of the 405 chapter 11 filings in the first two weeks of April this year. Gold's Gym was responsible for 13 of the 334 filings in early May. The chapter 11 filings are inflated in this way every month, and the differences wash out over longer periods of time. But, when looking at shorter periods--even monthly periods--one entity with lots of affiliates can distort the numbers. (See an old post here for more detail about how one home builder bankruptcy with 187 subsidiaries made it look like there was an economic calamity in August 2008.) I don't think we should ignore the chapter 11 numbers, just recognize their imprecision. I am comfortable saying chapter 11 filings are roughly what they were one year ago.

There are many predictions that bankruptcies are going to rise. I think that is the most probable scenario, but I also think we need to have humility about how much predictive power our past experience gives us in the face of the current crisis. The scale of the increase and how quickly it will come are very difficult to say. 

Correction (5/22/20): Because PACER search results include adversary proceedings by default, the original version of this post included adversary proceedings in the total filing figures, inflating the total filing figures by around 1,000 filings in each two-week time period. The figures now reflect only bankruptcy petitions filed during each two-week time period. The percentages changed by one percentage point or less. The conclusions of the post remain unchanged. And, yes, there appear to be about 1,000 adversary proceedings every two weeks or 500 per week.