Bankruptcy Filings Will Be the Lowest Since 1995 -- Here Is a Reason Why

In June, I said we are on track for just over 900,000 bankruptcy filings for 2014. The latest data are in from Epiq Systems, and that 900,000 figure remains the best estimate for the calendar year. We have had 556,875 total bankruptcy filings this year, and in 2012 and 2013, the last five months added 39.5% more filings. That gives an estimate of abut 907,000 filings for 2014.

Year-over-year declines remain large. There were 77,489 total bankruptcy filings in July or 3,521 filings per business day, a 11.7% decline from the previous year.

As the chart shows, the number of bankruptcy filings will be the lowest in the last seventeen years -- indeed the lowest since 1995. Those of you paying attention at home might point out that 2006 and 2007 appear to be lower, but these were the years around the passage of the 2005 bankruptcy amendments. If we average 2005 - 2007 for a more accurate picture, there were 1.1 million filings per year.

"Don't give me so much that you've given me nothing" - Remembering M. Caldwell Butler's Contribution to Bankruptcy Law

Former Virginia Congressman M. Caldwell Butler died last week. He is widely known for his role in the Nixon impeachment proceedings, his efforts to limit extensions of the Voting Rights Act, and his support for ensuring legal representation for low-income individuals. But Congressman Butler is also a major figure in the history of bankruptcy law. He was a principal co-sponsor of the Bankruptcy Reform Act of 1978 that serves as the foundation of the modern bankruptcy system. Professor and lawyer Kenneth N. Klee worked closely with Congressman Butler on the House Judiciary Committee in the 1970s. I asked Professor Klee to share a few words of remembrance with us, which I repeat in their entirety here:

I first met M. Caldwell Butler in 1975 when he became the Ranking Minority Member of the Subcommittee on Civil and Constitutional Rights of the House Judiciary Committee. Caldwell was most interested in the Voting Rights Act legislation and finding a way for the South to get out from under the Act. In his view, Washington was improperly interfering with the sovereignty of the southern states based on predicate acts that had long since ceased to serve as a basis for federal control. He asked me to draft a series of amendments that would permit the South to extricate itself from the Voting Rights Act. The requirements to regain sovereignty were quite demanding, to the point that the amendments became known as the "impossible bailout."  Nevertheless, the amendments did not come close to passing. It was evident that there were no circumstances under which the majority in Congress wanted to let the southern states out from the Voting Rights Act.

Caldwell assumed his responsibilities over bankruptcy legislation with diligence and good cheer. His fabulous sense of humor carried us through many long markup sessions during which the members of the Subcommittee read the bankruptcy legislation line by line. He had a sharp legal mind and deep curiosity. He also was very practical and to the point. He was fond of telling me "don't give me so much that you've given me nothing."

It was a privilege and honor to work with him. The bankruptcy community should join in paying him tribute.

                        -- Ken Klee

Congressman Butler made another round of contributions to bankruptcy reform in the 1990s. The fact that they are not all reflected in today's Bankruptcy Code makes this story more pressing, not less. Well over a decade after he had returned to the practice of law in Virginia, Congressman Butler was appointed to the National Bankruptcy Review Commission, for which I was a staff attorney. Expressing satisfaction with the 1978 Code, the House Judiciary Committee directed this Bankruptcy Commission to focus, for two years, on "reviewing, improving, and updating the Code in ways which do not disturb the fundamental tenets of current law."  Not one to leave the heavy lifting to others, even in a pro bono post, Congressman Butler stepped up to the challenge of forging a compromise, among those with diverging politics and views, to improve the consumer bankruptcy system.

900,000 Bankruptcy Filings This Year, Maybe

Bankruptcy filings have continued to decline in the first part of 2014. This decline is part of a longer-term trend as the graph shows. (Clicking on the graph will bring up a larger version in a pop-up box.)  As always, thank you to Epiq Systems for providing the data.

The May 2014 daily bankruptcy filing rate was 4,079, which was a 7.0% decline on a year-over-year basis. There have been just over 405,500 in the first five months of 2014. For the past three years, filings for the first January - May have been approximately 44.5% of the yearly total. Extrapolating, we therefore can expect just over 900,000 bankruptcies for the entire calendar year.

The annual filing rate is now 3.08 bankruptcies per 1,000 persons. The last time bankruptcy filings were this low was 1990. (if we ignore the anomalous statistical gyrations around the 2005 bankruptcy law).

With these latest numbers, the year-over-year bankruptcy filing rate has declined for forty-three straight months. The only indication this decline might stop is that the May 2014 year-over-year decline of 7.0% was the smallest decline since April 2011 when the decline was also 7.0%.

Working and Living in the Shadow of Economic Fragility

Credit Slips readers, please note the publication of a new book edited by Marion Crain and Michael Sherraden. The New America Foundation is hosting an event on the book tomorrow, Wednesday, May 28, 2014 at 12:15 EST. Not in Washington, D.C.? The event will be webcast live. 

The book project developed out of a stimulating multi-disciplinary conference at Washington University in St. Louis. Participants had great interest in considering how bankruptcy scholarship fits within the larger universe of research on financial insecurity and inequality. My chapter with Mirya Holman synthesizes the literature on medical problems among bankruptcy filers and presents new results from the 2007 Consumer Bankruptcy Project on coping mechanisms for medical bills, looking more closely at the one in four respondents who reported accepting a payment plan from a medical provider. Not surprisingly, these filers are far more likely than most others to bring identifiable medical debt, and therefore their medical providers, into their bankruptcy cases. We examine how payment plan users employ strategies - including but not limited to fringe and informal borrowing - to manage financial distress before resorting to bankruptcy, and (quite briefly) speculate on the future of medical-related financial distress in an Affordable Care Act world.

Cui bono?

At a conference on consumer bankruptcy policy over the weekend in Athens, Greece (a place that knows all too well about consumer financial distress) and again today in class, I confronted a really nagging, fundamental problem of bankruptcy policy: For whose benefit do modern societies develop consumer bankruptcy laws, and do these systems actually deliver such benefits? In my view, the most convincing and common explanation for why existing systems offer debt relief to consumers is that relieving their suffering redounds to the greater benefit of society at large (see, e.g., section I.9, pp. 26-40, in the World Bank's Report). The problem is that I know of no empirical proof of this essential assertion. Indeed, to the contrary, I have seen well done empirical evaluations of the fresh start that suggest that, at least in the US bankruptcy system, many consumer debtors are not being reinvigorated and reintroduced into the productive, open-credit society.

I'm no empiricist, but it strikes me as potentially impossible to substantiate the premise of consumer bankruptcy policy empirically. It would be a monumental task to even formulate a research agenda for such a question. How would/could anyone ever prove that society benefits from relieving consumers of overburdening debts? Has anyone tried? Am I missing something I should be citing? Is anyone attempting to answer the question today? Any leads welcome.

Are Churches Slowly Recovering?

I'm thrilled to join Credit Slips as an occasional contributor. As Bob mentioned, my research focuses on religious organizations that file under chapter 11. Based on the approximately 500 religious institutions that filed between 2006 and 2011 (about 90 cases per year), I previously concluded that primarily small nondenominational and congregationalist Christian churches seek to reorganize in hopes of retaining their buildings after they have fallen behind on mortgage payments. I recently updated my database of religious organization chapter 11 cases through the end of 2013 to see if faith-based institutions filed in similar numbers over the past couple years. (My previous paper details how I identify these filings.)

This graph shows the number of religious organization chapter 11 cases filed per year (values on left axis) versus the total business chapter 11 filings per year (values on right axis) based on data from Epiq Systems. Religious organizations are still filing in what some might view as substantial numbers: 107 cases were filed in 2012 and 89 cases were filed in 2013. Similar to total chapter 11 filings, their filing numbers are declining. On average, religious organization cases still account for about 1% of chapter 11 filings every year. 

Bankruptcy Filings Fall 13% in 2013

The year-end bankruptcy data from Epiq Systems just became available. Total bankruptcy filings in 2013 were 1,032,326, a 13% decline from the previous year. (Note the precise total will be subject to minor final adjustments.)

On a monthly basis, the daily filing rate in December was down 16.3% on a year-over-year basis. The monthly decline continues a long-term trend of falling bankruptcy filing rates. Filings are currently running around 3.3 per 1,000 persons. Last year at this time, it was 3.8 per 1,000 persons as compared to a post-2005 high of 5.0 bankruptcy filings per 1,000 persons, which occurred in September 2010.

Once December consumer credit statistics and recent economic indicators become available, I will try to make a forecast of where bankruptcy filings might be heading. This year, I predicted between 1,019,000 and 1,100,000, although that was in a May posting with four months of data available so I was cheating a little. Still, I take it as a predication.

(Yet Another) Chapter 13 Map

This post will have to be short on commentary -- "yay!," goes the reader -- as I am in the middle of getting ready for a conference. One of the things that preparation entailed is putting together the map to the right. To see the map well, you will need to click on it and a bring up a full-size image in a pop-up box.

The map shows the percentage of all 2013 bankruptcy cases that were chapter 13s in the 90 federal judicial districts in the fifty states and the District of Columbia. Over the years, I have put up numerous maps and tables about chapter 13 rates. This map shows the same patterns we have seen in the past in terms of both the range of variation and geographic concentrations of high chapter 13 districts. This version is different because it (a) uses 2013 data (through November) and (b) has groupings based on a cluster analysis. (A cluster analysis finds "natural" groupings of data based on the data's statistical properties.)

If anyone else has a use for the map, feel welcome. All I ask is attribution back to this post.

As Bankruptcy Filings Fall, the Percentage of Chapter 13s Rises

The latest bankruptcy filing statistics from Epiq Systems have just been released. They show that U.S. bankruptcy filings in November were just over 3,700 per business day. That is a 15.0% decrease on a year-over-year basis from last November. With just one month left in the calendar year, it looks like 2013 will see a total of around 1,030,000 total bankruptcy filings, representing a 13.1% decline in bankruptcy filings as compared to 2012.

My posts on the bankruptcy filing rate inevitably lead to questions about the reasons for the decline. If you are new to the blog, you can find many old posts discussing the reasons for the decline on our bankruptcy data page. I will try to write more about the patterns and trends I see in the bankruptcy filing rate decline after the first of the year when the full year's worth of data is in. 

Until then, it seemed useful to note that the percentage of bankruptcy cases that are chapter 13s has been increasing ever since the bankruptcy filing rate started declining in 2011. In an earlier post, I noted that the decline in the filing rate seems to be less in judicial districts where chapter 13 rates are high. A similar dynamic appears to be present in the annual data. Chapter 7 filings seem to have greater variation than chapter 13 filings, although it is fair to say the effect is not of a huge magnitude. 

The Second Derivative on the Bankruptcy Filings Rate

It's been a while since my last blog on bankruptcy filing rates. Indeed, the blogging has been slow for me since I got some new responsibilities in the day job. It's time that changes.

The bankruptcy filing rate continues to decline. That is bad news for bankruptcy lawyers but good news for, well, people. The second derivative, however, seems to be declining -- that is the rate of change in the rate of change is slowing, albeit barely. Instead of year-over-year declines each month of 14-15% as was happening last year, declines are now around 11-12%. Year-over-year declines the past three months have been -11.0%, -12.5%, and 11.4%.

New Empirical Paper on Home Mortgage Foreclosure and Bankruptcy

Cross-campus colleagues and I have posted a paper that studies intersections between mortgage foreclosure, chapters of bankruptcy, and other variables, using the Center for Community Capital's unique panel dataset of lower-income homeowners. An excerpt from the abstract:

We analyze 4,280 lower-income homeowners in the United States who were more than 90 days late paying their 30-year fixed-rate mortgages. Two dozen organizations serviced these mortgages and initiated foreclosure between 2003 and 2012. We identify wide variation between mortgage servicers in their likelihood of bringing the property to auction. We also show that when homeowners in foreclosure filed for bankruptcy, foreclosure auctions were 70% less likely. Chapters 7 and 13 both reduce the hazard of auction, but the effect is five times greater for Chapter 13, which contains enhanced tools to preserve homeownership. Bankruptcy’s effects are strongest in states that permit power-of-sale foreclosure or withdraw homeowners’ right-of-redemption at the time of auction.

Bear in mind that most homeowners in foreclosure in this sample did not file for bankruptcy. Among the 8% or so who did, the majority filed chapter 13. For even more context, please read the paper - brevity is among its virtues, and exhibits take credit for page length. A later version will ultimately appear in Housing Policy Debate.

Ribbon house image courtesy of Shutterstock.

Bankruptcy Filing Rate Decline Is Historically Anomalous

The latest bankruptcy filing figures from Epiq Systems show that the daily filing rate declined again in June 2013 by 11.5% on a year-over-year basis. There were 83,580 total bankruptcy filings in the month for a daily filing rate of 4,179 spread over the 20 business days in June. 

In the 2013 calendar year, there have been over 544,000 bankruptcy filings. For the past two years, bankruptcy filings for the first six months have been 53% of the total filings for the calendar year. A simple extrapolation thus suggests there will be approximately 1,020,000 bankruptcy filings in the 2013 calendar year. 

I updated the chart to the right, which has appeared on this blog in the past. (A mouse click on the chart will bring up a larger version in a pop-up window.) The chart shows the daily bankruptcy filing rate since 2004, making adjustments for the population growth that has occurred over that time. As the chart demonstrates, there has been a steady decline in the bankruptcy filing rate since early 2010.

May 2013 Bankruptcy Filing Numbers Continue Trend

The latest data from Epiq Systems are available, and they confirm my estimate last month of just over 1.0 million bankruptcy filings for the 2013 calendar year. Epiq Systems reports 96,430 bankruptcy filings for the month of May. Spread over the 22 business days in the month, that is a daily filing rate of 4,383. The daily filing rate is a 12.0% decline on a year-over-year basis.

If one extrapolates the filing rates from the first five months over the rest of the calendar year, the prediction remains for just over 1.0 million total filings in 2013. This figure would be a 14% annual decline.

Annualized, the bankruptcy filing rate stands at 3.54 filings per 1,000 persons. The last time the filing rate was lower was November 2008, when the bankruptcy filing rate was still experiencing the dip in filings that occurred right after enactment of the 2005 bankruptcy law. If one takes a longer view and considers the filing rate gyrations around 2005 as a statistical anomaly, the last time the filing rate was this low was 1995.

Bankruptcy Filings Over the Next 12 Months

Bankruptcy filings have continued to decline, and using data supplied by Epiq Systems, my analysis suggests the same trend will occur over the next twelve months.

First, looking back at March and April, bankruptcy filings declined 12.0% and 11.8% respectively on a year-over-year basis. The daily filing rate in March was just short of 4,900 and in April was 4,575.

If we extrapolate these numbers out over the rest of the year, bankruptcy filings should just barely surpass 1.0 million for calendar year 2013. If filings continue for the rest of 2013 at the same pace they have for the first four months, the number will be closer to 1.1 million, but the filing rate is typically strongest in the spring and then tapers off each year. Thus, a figure closer to 1.0 million is more likely and that rate of filing would represent an annual decline of 14% in the number of U.S. bankruptcies for the second straight year in a row.

Bankrupt Churches

My colleague, Professor Pamela Foohey, has just posted a paper on SSRN about religious organizations that have filed chapter 11. While the Roman Catholic dioceses bankruptcies have grabbed a lot of attention, Foohey identifies 509 other cases filed by faith-based organizations from 2006 - 2011. The amount of work in this study is impressive. Foohey individually reviewed each of the 60,000+ chapter 11 cases filed during that time frame to find the faith-based bankruptcies. The result is a census of faith-based organizations in chapter 11, including churches, schools, and community-assistance organizations.

Does Chapter 13 Prop Up Bankruptcy Filing Rates?

Yesterday, I noted the 14.1% decline in U.S. bankruptcy filings during 2012. Bankruptcy filings did not decline at the same rate everywhere, of course, although they did decline in 89 of the 90 judicial districts in the U.S. (not counting judicial districts in U.S. territories). In the Middle District of Alabama, bankruptcy filings even actually climbed (although by only 9 total filings out of almost 7,800).

The table to the right shows the twenty federal judicial districts where bankruptcy filings declined the least. One thing immediately leaps out: many of these districts are places where the percentage of chaper 13 bankruptcies is very high.

Bankruptcy Filings Fall Dramatically in 2012

The 2012 calendar year bankruptcy statistics from Epiq Systems hit my in-box last night. They show that total U.S. bankruptcy filings declined in 2012 by 14.1 percent. Specifically, there were just over 1,185,000 filings in 2012 as compared to 1,380,000 in 2011.

The decline will not come as any surprise to regular readers of the blog. Bankruptcy filings have been declining since November 2010 and fell consistently throughout 2012. The question is whether bankruptcy filings will continue to decline. In a previous post, I thought they might level off in 2013, and I am working on a more complete analysis.

Today's Bankruptcy Statistics Challenge

A friend wrote me and pointed out that Chief Justice Roberts's annual report noted that bankruptcy filings had declined in "89 of the 90 bankruptcy courts." He wondered which court was the exception, and for that sort of information, he wrote me.

The question has become today's bankruptcy statistics challenge. You may put your answer in the comments, but no fair looking it up. There are a few caveats. First, the chief justice was citing the statistics for the government's fiscal year, which ran from October 1, 2011 to September 30, 2012. Second, the chief justice's statement was only for bankruptcy courts in the states and not any in of the territories.

Look for the answer in a post later today about the bankruptcy filing statistics for the 2012 calendar year.  Also, be on the lookout for a post with a disquisition on what one's life has become when your friends write to you to get answer to bankruptcy statistical questions.

Undocumented Debtors

Immigration issues continue to be a major political football, and the work of Jean Braucher, Bob Lawless, and Dov Cohen on race in bankruptcy garnered front-page NY Times attention this year. This makes the publication of Chrystin Ondersma's paper titled Undocumented Debtors particularly timely. The paper is the first-ever look (to my knowledge) at whether and how undocumented people file bankruptcy. The key finding is that while it seems legal--and indeed arguably explicitly contemplated by the bankruptcy system--that undocumented people may file, the rate of filings is very low--on the order of less than one percent of the rate of debtors in the general population. Ondersma also provides a good overview of the credit systems available to undocumented people, ranging from those offered by large national entities, such as ITIN mortgages, to informal mechanisms such as tandas.

The Last U.S. Bankruptcy Filing -- October 11, 2018

After some fancy computing, it appears the last U.S. bankruptcy filing will occur on October 11, 2018. The model suggests it will occur about 10:00 PM, although there is a margin of error such that we should allow for anything between 9:00 to 11:00 PM. These projections are based on the latest bankruptcy filing figures, which continue to show a downward trend for the 25th consecutive month.

In November the daily bankruptcy filing rate fell 11.8% on a year-over-year basis. There were almost 87,000 total U.S. bankruptcy filings spread over the 20 business days in November, which makes for a daily filing rate of 4,347. The last time the daily filing rate was lower was June 2008. As always, thank you to Epiq Systems for providing the data. 

Crystal Ball Department: Bankruptcy Filings to Rise in a Few Years

Good times in the economy mean goods times a few years later for bankruptcy professionals who deal with consumer cases.  We saw this from the mid-1990s through the 2000s. The last big party in the bankruptcy world was in 2010 (1.5 million non-business cases filed!), a few years after the end of the last debt binge came to a crashing halt starting in 2007.  The reverse is also true.  Bad times in the economy make for fewer bankruptcy filings a few years later, which is what we have been seeing lately.

Those of us who blog on Credit Slips get frequent calls from reporters asking about bankruptcy filing statistics, specifically:  what do they mean?  Filings, which are mostly consumer filings, have gone down steadily for two years now, so it gets hard to come up with anything new to say, as Bob Lawless recently wrote here.

When filings go down, reporters new to the bankruptcy beat often think that means the economy must be getting better. Wrong. What drives bankruptcy filings is debt.  Decreases in debt are followed a few years later by decreases in bankruptcy, and increases in debt are followed by increases in bankruptcy.  The Great Recession that started in 2007 resulted in a great decline in household debt due to a combination of reduced access to credit and consumers voluntarily cutting back on debt-driven spending because of a lack of consumer confidence.

It’s so old hat to talk about the continuing decline in bankruptcy filings, produced by a long process of household deleveraging (meaning taking on less debt and instead paying off old debt), that I’m going out on a limb with a prediction. We may finally be seeing signs of a reversal in progress—consumer confidence going up, which should drive up debt volume, and presto chango, we’ll see more bankruptcy in a few years. Bankruptcy attorneys, take heart: recovery will mean a return to your good times, too, but a few years hence. 

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

In 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.

Paul Ryan's Bullshit About Bankruptcy Data

The philosopher Harry Frankfurt famously published his book, On Bullshit, where he distinguished lying (intentional disregard of truth) from bullshit (apathy as to the truth). Frankfurt argued that bullshit harms public discourse more than lying. Liars at least acknowledge the truth matters, although consciously choose to disregard it, but the bullshit artist displays a contempt for facts. To the bullshitter, facts are irrelevant.

Yesterday, Paul Ryan and his campaign put themselves firmly in the bullshit category, at least when it comes to bankruptcy statistics. Ryan said:

In 1980 under Jimmy Carter, 330,000 businesses filed for bankruptcy. Last year, under President Obama’s failed leadership, 1.4 million businesses filed for bankruptcy.

Both the New York Times and ABC News noted several problems with Ryan's statement. Most notably, Ryan conflated the total number of bankruptcies with the number of business bankruptcies. When ABC News called out Ryan for his misstatement, an official Ryan spokesman pulled out another doozy:

Consumer Bankruptcy Fee Study

I have just finished reading Lois Lupica’s paper on her impressive consumer bankruptcy fee study.  This is a model of what empirical, law-and-society research should be – it combines data from electronic court records with focus groups and key player interviews to give a textured understanding of the role lawyer’s fees play in this particular legal system. 

The finding that jumped out for me was a little-discussed but critical aspect of local bankruptcy culture: not how much, but when the trustee pays Chapter 13 lawyers’ fees (pp. 105-106). I practiced in a district where (before BAPCPA) the trustee paid out the fees as the first priority claim i.e. ahead of even secured creditors, but adequate protection payments (current mortgage and auto loan payments, e.g.) were paid directly to the creditors.  There are apparently districts where every plan must include a $200 monthly payment for the first 15 months to pay the attorney, others where the pre-confirmation adequate protection payments are diverted to the attorney’s fees and added to the arrears paid over the remaining plan life (i.e. borrowed from secured creditors), and many other fascinating variations.

Considering the practical consequences of these disparate rules for attorneys as they decide what cases to take, and how to structure plan payments, it is easy to see why Chapter choice, and Chapter 13 success rates, would vary so dramatically from one district to another.  For example, the front-loading of payments for the legal fee, followed by a payment step-down, would seem to increase the risk of plan failure. The sooner the lawyer is paid, the less risk she takes in filing the case.  That could increase access, but could also encourage filing more risky Chapter 13 plans. If we are concerned about the high failure rate of Chapter 13s on the one hand, and the high costs and difficulty of obtaining counsel on the other, we might do well to study these variations further to see what outcomes they produce for debtors, creditors and lawyers.

It also struck me that Professor Lupica's extensive data tables with fees actually paid, by chapter, state, district and case outcome, and no-look fees for Chapter 13, can provide important independent variables for other studies modeling bankruptcy outcomes.

Bankruptcy Filings Still Falling

On a year-over-year basis, the bankruptcy filing rate has been dropping around 12-16%, and last month was no exception. According to the most recent data from Epiq Systems, the daily bankruptcy filing rate in July was 4,622. That represents a 16.1% decline from the same time last year year and a 2.0% decrease from June.

We continue to be on track for just above or below 1.2 million filings for the 2012 calendar year. That will be a 13.9% decline from 2011 (1.38 million filings), which in turn was a 13.6% decline from 2010 (1.56 million filings).

The graph to the right shows the year-over-year changes since July 2008. (Clicking on it will bring up a larger version in a pop-up box.) The huge increases in 2008 were the lingering effects of the BAPCPA, the 2005 changes to the bankruptcy law. The filing rate was still recovering from the huge and artificial rise and then drop in filings around the time of the law's passage. Since November 2010, however, the year-over-year changes have been consistently negative and have been in the -12% to -16% range since May 2011. At what point will these declines stop?

What's On at a Courthouse Near You

In addition to a post last week broadly raising visitors' physicial interaction with courts, an earlier post discussed variation in the website availability of daily calendars for U.S. bankruptcy courtrooms. Today's post follows up on this narrower thread for two reasons. First, some who responded privately were interested in hearing what else was discovered. Second, the end of Judith Resnik's recently published Addison C. Harris lecture stresses that public access to court proceedings is more than of merely conceptual importance. While she observes that, "obtaining  a robust audience for courts also requires structural attention," it turns out that "many judges report their courtrooms to be lonely spaces" and "[i]n contrast to the popularity of media shows about courts, real judges often find themselves without an audience."(p. 339) These were not references to bankruptcy court (the lecture recognizes in other places that the nature of bankruptcy work occupies more courtroom time notwithstanding the phenomena of managerial judging and vanishing trials), but tee up the issue raised earlier: why don't all public courts post calendars on their websites? 

Bankruptcy Filings Are Down -- Everywhere

With half the year over, there is half of the year still to go. For our few readers who might actually know the quote--yes, that is a tribute to the legendary Murray Walker. Giving our place in the calendar year, it seemed like an appropriate time to look where things stood with bankruptcy filings.

According to data from Epiq Systems, there were 632,130 bankruptcy filings in the first half of 2012. Using a sophisticated mathematical model where I multiple that figure by two, I get a projection of approximately 1.25 million bankruptcy filings for the 2012 calendar year. That projection is slightly too high because filings in the first half of a year historically are slightly larger than in the second half. If the past few years are a good guide, it looks like there will be just above or below 1.2 million filings in 2012. If that projection holds, there will be a 13.0% year-over-year decline in the bankruptcy filing rate.

Chapter 13 Disparities: This Time with a Map

A few weeks ago, I put up a post describing the states with the highest and lowest per capita bankruptcy rates by chapter of the Bankruptcy Code. A closely related data point is which states have the highest percentage of bankruptcies that are chapter 13s. States with a high per capita rate of chapter 13s not surprisingly are the same states that tend to have the highest percentage of banrkuptcies that are chapter 13s.

Anyway, my point is that I made a map. Actually, I had to make the map of chapter 13 filing percentages for another purpose, and I thought maybe some other persons might have a use for it. So here it is. You are welcome to use it. If you want to download it, be sure to click on it so that a larger version opens up in a pop-up window. If you do use it, all I ask is that you attribute it back to Credit Slips and me.

Save the American Community Survey

The Credit Slips blog always has tried to offer perspectives from many different social sciences. That is why many readers may be distressed to learn of the attack on the American Community Survey (ACS). If you do not do a lot of social science work, you may not be familiar with the ACS. It is an arm of the Census Bureau that provides all sorts of information about what is happening in the United States. For example, did you know that people with a college degree live, on average, about two minutes further away from their workplace? At 30 MPH, that would be one mile further away. This small fact from the ACS, which we use as an example in our empirical methods book, might tell us a lot about the structure of cities and social stratification. And, this example is a poor one because it undersells the important data in the ACS on everything from income to drug use. I have used the ACS in my work to get information on consumer financial conditions in various states. There are all sorts of uses for these data in governmental, academic, and business circles.

Bankruptcy Court Calls

In connection with some ongoing research, I have noticed that U.S. bankruptcy courts have different approaches to informing the public about matters being taken up in open court. Many provide PDFs of court calls on their websites up to several weeks in advance (recognizing that matters settle, are postponed, or can change for other reasons). But on other bankruptcy court websites, it is difficult to find out what's happening on any given day. Might the informed readership of this blog offer reasons that courts refrain from making that information available on their websites? If you'd rather not comment directly on this post, feel free to write me privately at [email protected]. 

Where People File Chapter 13

Between states, there is a big disparity in the rate at which people file bankruptcy. Over the past four years, Nevada has had the highest bankruptcy filing with an a yearly average of 9.32 persons per 1,000 population file bankruptcy. At the other extreme has been Alaska with just 1.39 persons per 1,000 filing bankruptcy. As points of comparison, consider that the national filing rate over 2008 - 2011 was 3.54 per 1,000 population and that the national filing rate over the last twelve months has been 4.26 per 1,000 population.

I wondered how the filing rates would break down if we looked at just chapter 7 and chapter 13 separately. The result is the chart to the right.

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.

Tax Rebates Lead to Bankruptcy Filings

Jialan Wang has a blog post up summarizing her and her co-authors very interesting NBER paper estimating that at least 30,000 to 60,000 liquidity constrained households this will be priced out of bankruptcy because of the increased costs that came with the 2005 changes to the bankruptcy law. Actually, the research does not find that tax rebates lead to bankruptcy filings -- that was just a cheesy trick to get you to read the post. The researchers find that, after receiving tax rebates, people are more likely to file bankruptcy as they now have funds they can use to pay for the bankruptcy fees. They then use the randomization of the delivery of tax rebates in 2001 and 2008 to identify the effect that the higher fees caused on the bankruptcy rates of liquidity constrained households. It is a clever research design, and Credit Slips readers will want to check it out.

No Surprise: Bankruptcy Filings Jump in February

Bankruptcy filings rose in February, but the spike in filings keeps with historical trends. According to data from Epiq Systems, there were over 104,000 bankruptcies in February 2012. Spread over the 20 business days during the month, the daily February filing rate was 5,221 as compared to only 4,399 in January. This is a rise of 18.7% in one month, a matter of concern perhaps at first glance but no surprise on further analysis.

It seemed time to update a chart I have used in the past. The graph to the right shows month-to-month changes in the daily U.S. bankruptcy filing rate from 2008 through 2011. Late winter and early spring always see a spike in bankruptcy filing rates -- the cylicality persists even in previous years.

The graphs also show an amazingly consistent trend where the daily bankruptcy filing rate slowly erodes throughout the year. A simple regression on each year implies that the daily filing rate erodes an average of around 1.3% each month from its high in the early part of the year. This downward trend over the course of the year is true even in years like 2009 and 2010 when the total annual bankruptcy rate increased as compared to the previous year. Thus, when bankruptcy filings go up on an annual basis, the bulk of the increase comes in the early part of the year.

Evaluating Mandatory Financial Education in Bankruptcy

In 2005, Congress amended bankruptcy law to require individual debtors with primarily consumer debts to complete an "instructional course on personal financial management" to be eligible to receive a discharge of their debts. Adding financial education as a bankruptcy requirement divided the bankruptcy community, even debtor advocates, judges, academics, and others who almost uniformly did not like the 2005 amendments. Part of the mixed sentiment about the financial education may be that it is hard to dislike something as innocuous-sounding as education (although Professor Lauren Willis makes a good case against it in this article). And there were certainly bigger fish to fry in opposing the 2005 laws. Still, many complained that this was one more example of creditors getting Congress to lard on duties for debtors, driving up the cost and work of obtaining bankruptcy relief and setting up debtors to have their cases dismissed if they tripped up by failing to complete the educational course.

Dr. Deborah Thorne and I have a new study that looks at how debtors themselves feel about the mandatory financial education course. It is a chapter in this book, Consumer Knowledge and Financial Decisions (ed. Douglas Lamdin, Springer, 2012) and available to read here. In the 2007 Consumer Bankruptcy Project, we asked debtors whether they believed that the information from the financial education class 1)would what they learned in the financial education class have helped them avoid bankruptcy originally, and 2) would help them avoid financial trouble in the future. While only 33% thought a financial instruction course similar to the one required of bankruptcy debtors could have helped them avoid filing, 72% thought it would help them avoid future financial trouble. As we report in detail in the chapter, some demographic groups were much more positive about the value of financial education than others.

Littwin on Bankruptcy Without a Lawyer

A few weeks ago, Katie Porter noted the release of the new book, Broke: How Debt Bankrupts the Middle Class. We are trying to feature posts from the authors of Broke about their contributions. Today's post comes from Professor Angela Littwin of the University of Texas School of Law and a founding member of Credit Slips:

After a long absence, I am temporarily back on Credit Slips, blogging about my contribution to Broke, the new book edited by Credit Slips’ own Katie Porter. My chapter is about consumers who file for bankruptcy without a lawyer (known as filing “pro se”). The chapter is entitled The Do-it-Yourself Mirage: Complexity in the Bankruptcy System. which should give you a pretty good idea of my take on the matter. Using data from the 2007 Consumer Bankruptcy Project, I found that pro se filers were significantly more likely to have their cases dismissed than their represented counterparts. My most interesting result deals with education. My analysis suggests that consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom. I argue that bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.

This bad news, however, is not the entire story.

Teach Consumer Bankruptcy

It's the time of year when professors, including those who are adjunct professors or are interested in teaching as adjuncts, submit their proposed courses for the next academic year. Many of us teach a general 3 or 4 unit bankruptcy course that uses a textbook, and some of us teach specialized seminars on chapter 11. This year think about teaching a seminar on consumer bankruptcy. I've got just the class all ready to go--course pack, syllabus, writing assignments, even in-class exercises. All you need to do is put "Consumer Bankruptcy Seminar" on the form and return it to your Associate Dean.

When the chapter authors and I wrote Broke: How Debt Bankrupts the Middle Class, we wanted to create a reader that could support a seminar on consumer debt. I road-tested the book this fall in a seminar at UC Irvine Law School. The students loved it! (You can check out the course evaluations for yourself.) From my standpoint, it is the most fun, creative and easiest-to-prep class that I've taught. Full details are on this site, but the skinny is after the jump.

Fixing the "Fixed" Forms

Two weeks ago, I blogged about the Forms Modernization Project's effort to create new forms specifically for consumer bankrupts. The chair of that Project, Judge Elizabeth Perris, offered a lengthy comment that shared some information on the goals and process. I recommend it to you.  She noted that law students were asked to review the forms.

This fall during my seminar on consumer bankruptcy, I had my students do this as a take-home assignment. We had just read a chapter in Broke by Angie Littwin on pro se bankruptcy filers, and the students' task was to assess whether the forms would make the system easier for debtors. The students' observations ranged from the minute to global. My favorites are below.

The Backdrop for BROKE: Consumer Debt Then and Now

In the introductory chapter of the book, Broke: How Debt Bankrupts the Middle Class,  I present some data about consumer debt levels in the United States. As Bob Lawless and others have shown, levels of consumer debt are strongly correlated with bankruptcy filings. While conditions such as unemployment, rising health care costs, and skyrocketing college tuition--and recessions--all create pressures on consumers that lead to borrow, debt is the sine qua non of bankruptcy--the relief offered by the system is the reduction or elimination of debt--not the promise of a good paying job or a strong social safety net. Because bankruptcy is driven by debt, those filings help reveal whether the levels of consumer debt will create serious problems for the economy and American families.

In Broke, I present a figure, courtesy of the San Francisco Fed, that shows the dramatic growth in household debt in real dollars over the last few decades. Reproduced below, the figure shows that the sharp acceleration began in the mid 1980s. This is an important point to understanding why recovery is proving difficult from the recession. As I explain in the book, "The consumer debt overhang, however, began long before the financial crisis and the recession. Exhortations about subprime mortgages reflect only a relatively minor piece of a much broader recalibration in the balance sheets of middle-class families. . . . The boom in borrowing spans social classes, racial and ethnic groups, sexes and generations." Broke, pp 4-5. The gray bands on Figure show recessions; this recovery is more difficult, at least in part, because we have an unprecedented gap between income and debt. Is this gap disappearing as a consequence of consumer reluctance to borrower and tightened credit conditions?

Consumer Friendly Forms for Bankruptcy

In many respects, bankruptcy is a one-size-fits-all legal process. Yes, there are ample differences in the law (and a world of difference in practice) between the bankruptcy of a large corporation and a typical consumer. But the Bankruptcy Code itself contains plenty of provisions of general applicability. A major example of the one-size-fits-all approach to bankruptcy is the official forms for filing a case. The basic petition and schedules are the same forms for Big Airline Co. and Mr. Joe Blow. The information on the forms is wildly different, with Big Airline Co. listing hundreds or even thousands of creditors, with many more digits in their debts, than Joe Blow. But the form for those debts--Schedule F--is the same form. That may all be changing soon.

The Bankruptcy Rules Committee began a Forms Modernization Project a few years ago, and one of its top agenda items has been creating new forms just for use in consumer bankruptcy cases. Although few people seem to be aware of the effort, a draft version of those new forms is available to the public and to my mind, well worth a look. To see the forms, go here, then click on September 2011, download the file, and look  at pp. 189-315 of the PDF (or tab 7.1 if you use the PDF index.) One thing that is obvious from the page numbers in the prior sentence is that the new forms are really long--way longer than the current forms as completed in the typical consumer case. The added length results in part from the development of extensive instructions for each form. Below is an example of a new form with some commentary on its notable new features.

How to Address Apparent Racial Disparity in the Consumer Bankruptcy System

The article discussed in the N.Y. Times story today is heavily empirical. It is also deliberately light on the prescriptive. Bob Lawless, Dov Cohen and I did make two modest proposals: (1) that a question about race of the debtor should be included on the form for a bankruptcy petition to make it possible to confirm (or disprove) the finding that African Americans file in chapter 13 at a much higher rate than debtors of other races (about double in the data we have), and (2) that all actors in the bankruptcy system—judges, trustees, attorneys and clients—be educated about the apparent racial disparity and the possibility that subtle racial bias may be producing it. The Times certainly helped with the second one!

Beyond that, we leave it to others and to each of us individually to come up with policy responses. In my view, Henry Hildebrand, a longtime chapter 13 trustee in Tennessee, got the big picture exactly right; he is quoted in the Times story as saying we should “use this study as an indication that we should be attempting to fix what has become a complex, expensive, unproductive system.” He will probably reappraise his views if he finds out that I agree with him! Those of us who participate in or study the system know that its complexity is onerous.

Race and Chapter 13

As Adam noted in his kind post, the New York Times today featured our study, "Race, Attorney Influence, and Bankruptcy Chapter Choice." My co-authors are Credit Slips blogger Jean Braucher, a law professor at the University of Arizona, and Dov Cohen, a professor at the University of Illinois who holds a cross appointment in psychology and law. And, we all express many thanks to the NYT reporter, Tara Siegel Bernard, who spent a lot of time slogging through the statistics and legal intricacies in our study.

In a nutshell, the study reports real-world data from the Consumer Bankruptcy Project showing that, among bankrupcy filers, blacks file chapter 13 at higher rates than all other races. The effect is large -- for example, blacks even had a higher chapter 13 rate (54.6%) than homeowners (47.1%). The second part of the study showed that, in a random sample, bankruptcy attorneys were more likely to recommend chapter 13 for a hypothetical couple named "Reggie & Latisha" who went to the African Methodist Episcopal Church as compared to "Todd & Allison" who went to the United Methodist Church. Also, attorneys were more likely to see "Reggie & Latisha" as having good values and being more competent when they expressed a preference for chapter 13.

Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy

At the end of a lively session yesterday at Duke Law School featuring Professor Stephen Ware of University of Kansas Law School, there was a brief discussion of whether shorter foreclosure timelines and clearer rules would promote more workouts of delinquent mortgages. The aforementioned paper about bankrupt homeowners suggests that the opposite might actually be the case: among homeowners in bankruptcy, longer foreclosure timelines in their home states were associated with a lower probability of foreclosure initiation while shorter timelines were associated with a higher probability of foreclosure initiation.

What is the Relationship Between Credit Cards and Mortgage Delinquency?

Previously I mentioned this new paper on homeowners in bankruptcy in the American Bankruptcy Law Journal. The central goal of the paper was to investigate what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. One of the notable findings is that, across all the models, credit access had a significant effect on keeping mortgages current and avoiding foreclosure initiation (specifics listed pp. 302-304). But why?

BROKE: A New Book on Consumer Debt and Bankruptcy

Just in time for New Year's resolutions on 1) reading more, 2) paring back your own debt, and 3) learning more about consumer bankruptcy to help you do your job (if you are a lawyer, judge, or academic, media, etc), the book, Broke: How Debt Bankrupts the Middle Class was released from Stanford University Press.

The book makes extensive use of the 2007 Consumer Bankruptcy Project data, providing statistics, analysis, and commentary on consumer bankruptcy and debt topics. I edited the volume, and chapter contributors are many Credit Slips regulars or guest bloggers--Jacob Hacker, Bob Lawless, Kevin Leicht, Angela Littwin, Deborah Thorne, and Elizabeth Warren--along with other top scholars.

In the next few weeks, the chapter authors will blog here at Credit Slips about the research featured in the book, but to whet your appetite, I've included a table of contents for the book after the break. The book is accessible to lay readers but its scholarly focus provides plenty of data to educate and surprise even bankruptcy experts. Working on the book, I certainly learned a great deal about timely and important topics such as how pro se debtors (those without attorneys) fare in bankruptcy, where families go after they lose their homes to foreclosure, how bankruptcy affects couple's marriages, and the ways that bankrupt households differ in their financial straits from other households of concern such as those with low assets or late payments on debt. Of course I'm biased but I think the book provides the most comprehensive overview of the consumer bankruptcy system since the enactment of the 2005 bankruptcy amendments.

Bankruptcy Filings Down 11.7% in 2011

The year-end bankruptcy statistics from Epiq Systems have arrived. There were just over 1,379,000 U.S. bankruptcy filings in 2011, a decline of 11.7% from the previous year.

On a monthly basis, December kept with the theme of the past year. The daily bankruptcy filing rate in December 2011 was 4,584, a decline of 12.1% on a year-over-year basis. The past seven months have seen year-over-year declines in the 10-15% rate range. What makes December 2011 different is that December 2010 itself had a year-over-year decline. In words, the declines are building on previous declines.

The question for the moment is whether bankruptcy filings will level off at around their current level or continue to decline. I'm inclined to think we'll see a further decline in 2012, although that assessment is more instinct than analysis. I'll try to post a more formal analysis about projected bankruptcy filings for 2012. Bankruptcy filings may not be a great economic indicator, but their levels are important for the bankruptcy system.

In or Out of Mortgage Trouble? A Study of Bankrupt Homeowners

This is a newly published paper  in the American Bankruptcy Law Journal that I was lucky to work on with Daniel McCue and Eric Belsky at the Joint Center for Housing Studies at Harvard University. Using previously unexamined data in the 2007 Consumer Bankruptcy Project, we study what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. Although much can be said about the econometric analysis, for now I wanted to mention quickly that the paper includes descriptive details about bankrupt homeowners (debtor-reported) such as numbers of missed mortgage payments, use of adjustable rate mortgages, mortgage broker use, mobile homes, and refinancing or home equity lines of credit. So please check it out!   

The Decline in Bankruptcy Filings by Chapter

Bankruptcy filings have been on the decline, but has this decline been spread differently between chapter 7 and chapter 13? Using figures from the Bankruptcy Data Project at Harvard as supplied by Epiq Systems, the chart to the right breaks down the decline by chapter. (Clicking on the chart will bring up a larger version in a pop-up box.)

For the past year, both chapter 7 and chapter 13 bankruptcies have been declining. Some commentators have speculated that the slowdown in mortgage foreclosures has been the reason for the declining bankruptcy rate, but if that were true, one probably would see larger declines in chapter 13 rates given that it is the chapter associated with saving a home. In fact, chapter 13s have been declining at a lower rate than chapter 7s. Consumer credit markets play the most important role in determining the swings of the bankruptcy filing rate. If mortgage foreclosures do climb in the first part of 2012, I do not expect to see a huge increase in bankruptcy filings.

One in Five American Families Have Medical Bill Problems

According to this new report. As Mirya Holman and I have explained in the bankruptcy context, measuring medical bill problems and debt is notoriously contested, but the Center for Studying Health System Change does try to make clear its methods and also uses similar metrics over time. The report also contains statistics on the proportion of their sample that considered filing for bankruptcy and actually did file. Definitely worth reading.  

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.