Bankruptcy Filings Dropping More Rapidly Than Expected

According to the most recent data from Epiq Systems, there were 120,800 bankruptcy filings in August for a daily bankruptcy filing rate of 5,250. The August daily filing rate represents a year-over-year decline of 14.8% and a decline of 3.5% from July 2011.

These latest figures represent a somewhat deeper drop in bankruptcy filings than I had expected based on my earlier forecast of a 5-10% decline for all of 2011. With the past four months showing year-over-year declines of 10% or higher, it is beginning to look like the annual decline in the bankruptcy filing rate will be above 10%.

One More Time, With Feeling

A Credit Slips reader pointed me to an article in the Atlanta Journal-Constitution pondering why the bankruptcy rate is falling. The piece is filled with quotes about the relevance of the economy and the cost of filing bankruptcy. Most of it is wrong. For example, it is right that the cost of filing has increased since the 2005 changes to the bankruptcy law, but there is no  evidence the cost has risen in the last year. Thus, the rising cost of filing bankruptcy helps to explain why bankruptcy rates have declined relative to pre-2005 levels but not why they have declined since last year.

Regular readers will know a piece like this just pushes my buttons. Outstanding consumer credit has the strongest statistical link to the short-term ups and downs of the bankruptcy filing rate. The relationship is counter-intuitive and paradoxical. As consumer credit rises, banrkuptcy rates tend to fall in the short term. As people borrow to stave off the day of reckoning, they postpone bankruptcy. When consumer credit tightens, people are less able to borrow to satisify their current needs and, as they run out of options, are more likely to end up in a bankruptcy lawyer's office. When it comes to the economy, the bankruptcy filing rate tells us very little about the overall health of the economy. The strongest reason why bankruptcy filing rates have eased slightly is that consumer credit has become slightly more available, according to the Federal Reserve's latest release.

Omnibus Update on (Declining) Bankruptcy Filing Rates

The June bankruptcy filing figures came out while I was away, and the July figures came out a little late. Thus, I have missed the past two monthly posts on the bankruptcy filing rate. Consider this an omnibus update on the pace of bankruptcy filings. As always, the data come courtesy of Epiq Systems.

The big picture is that U.S. bankruptcy filing rates continue to fall, both on a monthly and year-over-year basis. The daily bankruptcy filing rate was 5,484 in June and 5,505 in July. These figures represented year-over-year declines of 10.0% and 14.2% respectively. As compared to one year ago, bankruptcies over the first seven months of 2011 have fallen by 9%. The trend now suggests total annual filings for 2011 will be between 1.40 and 1.45 million, a decline of 7-10% from 2010 when 1.56 million bankruptcies were filed.

Bankruptcy Filings Dip Substantially in May

Bankruptcy filings in May dropped 12.5% on a year-over-year basis. There were almost 123,000 filings in May, which spread over the month's 21 business days, amounted to a daily filing rate of 5,845. That number also represents a 5.4% drop from April 2011. As always, these numbers come courtesy of Epiq Systems.

The drop in May represents the seventh straight month of year-over-year declines in the bankruptcy filing rate. It is the largest year-over-year decline since the trough of bankruptcy filings ended after passage of the 2005 bankruptcy reforms. There appears now to be almost no question that bankruptcy filings in 2011 will be down. Although the May drop is larger than expected, I still believe in my projection of a 5-10% decline for the year.

Lest anyone think the bankruptcy decline means times are great, keep in mind that the absolute number of bankruptcy filings will be between 1,450,000 and 1,500,000, representing over 2,000,000 people (because about 30% of bankruptcy cases are filed jointly by a husband and wife). There is still plenty of misery to go around.

For those who are looking for reasons for the decline in bankruptcy filings, it is because of the increased availability of consumer credit. This trend was apparent by the end of last year and, if anything, has increased in pace. Rather than belabor the point, I will refer readers to a previous post on the relationship between consumer credit and bankruptcy filing rates.

A New Study on Medically Related Bankruptcies

Thanks to our friends over at WSJ's Bankruptcy Beat, a new study caught my eye on the issue of medical bankruptcies. A new study appearing in the Journal of Clinical Oncology documents an increased risk of bankruptcy with certain types of cancers. The full abstract is available.

The study is principally directed at understanding what contributes to bankruptcy risk as between different types of cancers. But, if we can use cancer as an indicator of serious medical problems, the numbers can be used to draw some comparisons between medical problems and general bankruptcy risk. The conclusions provide some support for both sides of the debate about whether medical problems lead to an increased risk of bankruptcy.

Bankruptcy Filings Down in April

The postings have been a little light here the last few days as we all have been taking care of the onslaught of work (mainly grading) that accompanies the end of the semester. If you are curious about the rhythms of the academic world, I have often thought that you could learn a lot just by following the posting frequency here.

One of the things that fell off my desk was my monthly update on bankruptcy filing statistics. We are almost all the way through May, but on the theory that better is late than never, here are the numbers for April. As always, thanks to Epiq Systems for the data.

A Deeper Dive into Racial Disparities in Chapter Choice and Women in Bankruptcy

Thanks again to Bob Lawless for his excellent post this morning highlighting the findings from our latest report, “Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The report found evidence of racial disparities in chapter choice in Cook County, IL, as well as a disproportionately high concentration of filings among women living in communities of color. If you don’t have time to read the whole thing, check out our press release and policy brief.

If this report raised any burning questions, feel free to ask them on a conference call we will be hosting on Thursday at 11am CT (follow the link to register and get the call-in information).  If you’re shy, you can also send questions via Facebook or Twitter, and I’ll answer them on the call. I will be joined by Megan Cottrell of the Chicago Reporter.  The Reporter is an investigative magazine that published a companion piece to our report asking why these racial disparities in chapter choice might exist. I will also be joined by Woodstock Institute’s Policy and Communications Associate Katie Buitrago who will close out the call by telling the story of one bankruptcy filer, Roxie King, a grandmother of 20 from an African-American neighborhood in Chicago who went through Chapter 13 bankruptcy after being laid off from her job as an echocardiogram technician. Roxie tells her story in the video below:

The Stark Facts of Race and Bankruptcy

The Woodstock Institute in Chicago has a fantastic new report entitled, "Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The results are ugly for anyone who believes in equal access to economic opportunities and justice.It should be required reading for anyone working with bankruptcy and credit. The basic findings from Cook County:

• Personal bankruptcies are concentrated in African-American communities
• African-Americans are much more likely to file chapter 13
• Women make up a larger share of individual bankruptcy filers, and a dramatically larger share in African-American communities, than men do

The only statistic that contradicts the story of a racially sorted bankruptcy system is that from 2008 to 2010 the bankruptcy filing rate increased everywhere but increased the most in white and Latino communities. The African-American fiing rate was already so much higher, however, that it is not surprising that it showed less of an increase than the increase for other racial groups.

Bankruptcy Filings Continue Decline on Year-over-Year Basis

It's monthly bankruptcy filing data time. Long-time readers will suspect I am about to hit my usual theme: the raw numbers are usually deceiving. Although March saw a lot of bankruptcy filings, both the number of extra days in March and seasonality in the data make the March figures almost good news. In fact, on a year-over-year basis, the filing rate continues to decline. As always, thank you to the folks at Epiq Systems for providing the data reported and analyzed here.

One Consumer Bankruptcy System, or Many?

As Principal Investigator of the Consumer Bankruptcy Fee Study, I've been gathering "qualitative data" from attorneys, trustees and judges about how the consumer bankruptcy system is working. I have conducted over a dozen focus groups, many, many one-on-one interviews, and have been privy to myriad list-serve threads discussing the costs of BAPCPA generally and more specifically, consumer bankruptcy attorney fees.

Here is one preliminary observation: there is a huge disparity with respect to how and how much attorneys are paid, depending upon where in the country they practice. This is not a shocking revelation on its face, given the disparities in the cost of living from city to city. The data reveal, however, variations that go beyond big city=expensive, small town=cheap.

The Consumer Bankruptcy Fee Study

Thanks to Katie and my friends at Credit Slips for the guest blogging gig.  I appreciate the invitation and the opportunity.

In my next couple of posts, I am going to report on the Consumer Bankruptcy Fee Study (see Katie's post below).  Today, I'm making a pitch to the consumer debtor's attorneys who have received (or will receive) an invitation to participate in a survey about their consumer bankruptcy practices.  To date, the Consumer Debtor Attorney Fee Survey has been distributed to ~400 lawyers who represent consumer debtors.  I expect to send out a couple of additional "waves" in the next weeks.  As I said in my cover note,

Bankruptcy Filings Climb in February, But Looks Can Be Deceiving

There were a total of 109,178 bankruptcy filings in the month of February for a rate of 5,750 new cases per day. The February figure represents a 12.6% increase from January March. Although bankruptcy filings seem to be up sharply in February, looks are deceiving. In reality, the 12.6% increase in February supports the idea that, on an annual basis, bankruptcy filings actually will decline in 2011. As always, the data for this analysis is courtesy of Epiq Systems.

Big-Bankruptcy Empirical Research Post-Op (3): Jack-knife Fights and Pencils in Zimbabwe

If you have followed me this far--and it's understandable if you haven't--you might be curious to know what ultimately came of LoPucki's Big-Bankruptcy Empirical Research Conference, which I "live-blogged" (is that a verb?) yesterday.

The short answer:  It's all about jack-knifing and pencils in Zimbabwe.

Huh?

Background:  Nothing gets academics’ dander up like debates about methodology.  For legal academics, this often breaks into two related clashes.  (1) Whether to be an “empiricist” or not; and (2) if so, how to do it.  

The folks at LoPucki’s conference mostly drink the empiricism Kool Aid, so answer the first question “yes.”  After all, they included some of the nation’s leading business bankruptcy empiricists, among others Ken Ayotte (Northwestern), Joe Doherty (UCLA), Ted Eisenberg (Cornell), Bob Lawless (Illinois), Adam Levitin (Georgetown), Steve Lubben (Seton Hall), Ed Morrison (Columbia), Bill Whitford (Wisconsin), Sarah Woo (NYU) and, of course, LoPucki himself.

Rather, the real knife fight was over how to do this work.  Must it only be quantitative (and guided by a scientifically legitimate—falsifiable—hypothesis)? Or could (should) it also include (arguably less rigorous) qualitative methods?  Does it have to be social science?  Or is “good enough for law” good enough?

This may sound like mere wonkage.  But it matters for two reasons.  

Live-Blogging the Big-Bankruptcy Empirical Research Agenda (2): Defining Terms

Still at UCLA.

Regardless of how you define chapter 11 success, selecting the information that should compose a chapter 11 database to help you figure out what works (and what doesn't) is often a much trickier problem than you might think.  Consider, for example, the simplest question:  what is a “turnaround manager?” 

It’s a question you might want to be able to answer, because you might think that they do (or do not) make success (however defined) more likely.   The services of the  ZolfoCoopers and Alvarez and Marsals of the world  don't come cheap.  If they aren't improving outcomes, maybe they aren't worth the price.

Yet, we know that the ZolfoCoopers and Marsals are not the only turnaround managers. For example, LoPucki observed that many companies in trouble may simply let senior management go, and “promote some subordinate lackey who is declared to be a turnaround expert.”  Is that person a "turnaround manager"?

Live-Blogging the Big-Bankruptcy Empirical Research Agenda: Nothing Succeeds Like Success

UCLA Law Professor Lynn LoPucki has graciously agreed to permit me to live-blog the Big-Bankruptcy Empirical Research Agenda conference he has organized today at UCLA.

For those few who don't know, the Bankruptcy Research Database is one of the most important tools available to scholars and practitioners interested in understanding patterns in  chapter 11 cases.  It captures a great deal of information about essentially every large public company that has commenced a chapter 11 case under the current Bankruptcy Code.

The holy grail of all bankruptcy scholarship is figuring out whether a case was successful.  Conventional wisdom might say that confirming a chapter 11 plan—and paying the professionals in full—is good enough. 

But, we know that many companies file again, despite having confirmed a plan, and that may not necessarily be evidence that the plan was a failure:  circumstances change, etc.  Conversely, the confirmed plan may, in hindsight, prove much worse than other possible deals: Perhaps a 363 sale would have produced greater recoveries for creditors.  

Bankruptcy Filings Hit 2-Year Low in January

In January, households and businesses filed bankruptcies at the rate of 5,090 per day. The last time the daily bankruptcy filing rate was this low was January 2009. Monthly bankruptcy filings are sensitive to the number of business days in a month, making the daily filing rate a more meaningful figure than the absolute level of filings.

The January 2011 daily filing rate represented a 2.2% decline from December and a 5.9% decline on a year-over-year basis from January 2010. The January dip should not be overstated. The months of December and January historically are low filing months. Nevertheless, the January decline is keeping with the longer term trend of a declining bankruptcy filing rate and a long-term forecast that total bankruptcy filings will decline slightly in 2011.

And, before anyone runs around claiming that a declining bankruptcy rate is a sign of the economic recovery to come, be sure to read this post explaining why that is not necessarily so. As always, thanks for Epiq Systems for the data behind this post.

Debt Causes Bankruptcy (But Sometimes in Counter-Intuitive Ways)

I like NPR's Marketplace, but stories like this drive me nuts: "Why bankruptcy claims aren't as high as one would think." The story repeats a premise I often hear in media calls that I receive. The conversation usually starts something like this: "Foreclosures are up, unemployment is high, the economy is a wreck: why have bankruptcies stopped climbing?"

Wrong question. But fair enough. I get called because I am supposed to know something about bankruptcy filing rates, and my caller often has just picked up the assignment for the day. If that is the wrong question, what should we be taking away from trends in bankruptcy filing rates?

Bankruptcy Filings Continue to Slide in December But Show 8% Increase on Annual Basis

The daily bankruptcy filing rate dropped 7.3% in December, coming on the heels of a 13.3% drop in November. Overall, there were about 114,700 filings in December according to data provided by Epiq Systems. On a year-over-year basis, December 2010 was a 2.1% decline from December 2009.

Projected Filings for 2011

There will be 1,457,787.3 bankruptcy filings in 2011. Well, at least that is what the numbers say, although I'm not sure what will happen in that last .3 of a case.

That projection is based on a fairly simple model that uses monthly data from 2006 - 2010 on bankruptcy filings (again thanks to Epiq Systems for providing those data) as well as government data on revolving consumer credit (e.g,, credit card debt), nonrevolving consumer credit (e.g., car loans), and the unemployment rate. The model also accounts for cyclical monthly effects--bankruptcy fiings often spike in February and March and decline in November and December--as well as fixed effects from the The graph to the right shows the model's results. The solid black line shows the actual bankruptcy filings for 2010 through November. The dotted red line shows what the model would have predicted for 2010 while the solid red line shows the model's projections for 2011.

Bankruptcy Filing Rate Drops Sharply in November

The bankruptcy filing rate fell sharply in November, declining 13.4% to a daily rate of slightly over 5,600 per day. On a year-over-year basis, November filings were down 2.7% from November 2009. The total number of filings in November -- 118,000 -- was spread over more business days making the daily filing rate decline greater than the decline in the total number of monthly filings reported elsewhere. Because the number of monthly bankruptcy filings is sensitive to the number of business days in a month, the daily filing rate is a more meaningful figure.

Google, Bankruptcy & Bieber

One of the many wonderful things about university teaching is that you get to hang around lots of smart people who tell you lots of interesting things. One of my students, David Henken, pointed out to me a very interesting pattern that comes from Google Insights for Search. People use Google to search for the word "bankruptcy" much more often during the week than the weekend. Does this pattern tell us something about how people think about bankruptcy? Perhaps.

Compared to the weekly pattern for other search terms, "bankruptcy" seems to have its own rhythm. This includes a search I did for "Justin Bieber," perhaps the most useful Bieber-related search that has ever occurred. And, yes, my invocation of Justin Bieber is largely motivated by a shameless attempt to increase blog readership among girls aged 10-14, especially those living at Casa Lawless.

Bankruptcy Filings Follow Their Usual Summer Sideways Move

The bankruptcy filing statistics for September have displayed their usual sideways move during the summer. Since May, each month's filing rates have moved up or down. Overall, however, bankruptcy filing rates, while somewhat lower, are approximately where they were at the beginning of the summer.

September's total daily bankruptcy filing rate was 6,380, a monthly increase of 3.5% that comes after a monthly decline of 3.9% in August. For comparison, bankruptcy filings spiked higher than usual in March 2010, making April a better reference. In April, the daily bankruptcy filing rate was 6,650. For the past twelve months, the average daily filing rate has been 6,220.

The Shadow Consumer Bankruptcy System

    Bankruptcy filings have not risen at anything like the rate at which consumer debt defaults have risen since 2007.  Part of the explanation may lie in the shadow bankruptcy system, a network of alternative service providers who purport to save debt-burdened consumers from the bankruptcy court.  While consumers being sued on delinquent credit cards and mortgages receive solicitations in the mail from bankruptcy attorneys, they are also deluged with a variety of other offers of aid.  These range from foreclosure rescue scams to a wide range of legitimate and dubious debt advice and counseling services, to debt elimination and debt settlement schemes.  While pondering this post I searched in the usual places for any good empirical data on the number of consumers participating in non-profit counseling, or the number of customers enticed by those who promise to make debt disappear, with no success.   We don't seem to know how many debtors go to these debt advice services.

A Lot of Wisdom over at the NYT

Tara Siegel Bernard has a post up over at the New York Times Bucks blog about economic indicators, outstanding credit, and bankruptcy filings. She quoted some guy named "Lawless" who really sounds like he knows what he is talking about--probably a good-looking guy too. Punch line -- less credit means fewer bankruptcies all other things being equal (which they rarely are).

Debt Distress: Symptoms and Treatment

From the United Kingdom comes an interesting new study, based on a survey of more than 10,000 applicants for legal aid about their problems and the means they use to address them. The study explores the linkages between overindebtedness and social exclusion.  Consumers seeking help with debt problems are much more likely to face multiple related difficulties, including employment, mental health and other civil justice problems.  This longitudinal study also reports on the duration of debt problems and the success or failure of different strategies consumers employed.  The findings support the need for a broad array of services to assist consumers overwhelmed by debt, an approach characteristic of many European consumer bankruptcy and debt adjustment systems, about which Jason Kilborn and others have written.  These coordinated social service approaches are notably absent from the US bankruptcy system, at least officially, and apart from some token counseling requirements.  

One of Every Nine Bankruptcy Cases Is Filed Without a Lawyer

A few weeks ago, I pulled a national random sample of chapter 7 and chapter 13 cases filed by individuals during July and August of 2010. I kept track of how many were filed by pro se debtors, that is people who were not represented by an attorney as indicated by the docket sheet. The figure was 11.3% or a little more than one out of every nine cases (n = 672). Interestingly, the pro se rate was higher in chapter 13 (13.8%) than it was in chapter 7 (10.1%), but the difference was not statistically significant (p = 0.167).

The fact that one of every nine debtors files bankruptcy without an attorney will probably strike some people as high, but keep in mind this is just a national average. From talking with court clerks and bankruptcy judges, I understand some jurisdictions may have a pro se rate as high as 30%. Pro se debtors can impose extra costs on the bankruptcy system as they try to navigate the maze of forms and proceedings. Also, with a very complex law like the Bankruptcy Code that was only made more complex in 2005, it is likely that unrepresented debtors are not achieving as good results in bankruptcy as those who are able to afford attorneys.

Bankruptcy and the Crisis: Why so Few?

Many thanks to Bob for the invitation to guest blog here.  Those who follow Bob's postings on bankruptcy filing numbers will have seen that U.S. consumer bankruptcy filings have been plodding upwards steadily, but only to roughly where they were before the BAPCPA bubble back in 2005.  One of the inscrutable mysteries of the financial crisis of 2007-??, which is after all a housing and consumer debt crisis, has been how few bankruptcies have been filed.  Somehow, historically unprecedented levels of consumer debt and loan defaults have not produced the surge in bankruptcy filings one would expect.

July Bankruptcy Filings Rise, But Look at the Big Picture

The folks at Automated Access to Court Electronic Records (AACER) sent over the July bankruptcy figures. Total U.S. bankruptcy filings in July (134,600) were about the same as they were in June (133,900). There was extra business day in July, however, meaning that the daily filing rate, rose 5.3% to 6,408. The year-over-year increase in the daily filing rate was 7.7%.

Regular readers know that I am skeptical of reading very much into the ups and downs of the monthly filing rate. If you had looked at the June fiing rate, you would have seen an 8.9% drop in daily bankruptcy filings and perhaps concluded the economy was beginning to turn around. The July increase might lead you to the opposite conclusion. The most informative analysis comes from taking a longer term look at the data. And, there is my usual caveat that bankruptcy filings are, at best, a weak and trailing indicator of overall economic strength.

Visualizing Financial Distress

The Admistrative Office of the US Courts (AO) has released updated data on bankruptcy filings. While the AO data as some problems, as Bob Lawless has pointed out, I am pleased that they seem to have improved the accessibility of the data. For example, there is now an interactive map by state that is sort of fun (well, fun in my world).

One nice thing is the statistics on net scheduled debt. Given the way that some people seize on the dollars of debt in bankruptcy as a marker of the system, I like how the AO has deducted nondischargeable debt from the total debt listed by the debtor. To do otherwise, gives a misleading picture of how much "help" people get from bankruptcy. But additional caution is still needed. For the chapter 13 filers, about 2 in 3 of these people will not get a discharge of any unsecured debts because they will not complete the repayment plan. Much more importantly, these figures are total debt, the bulk of which will be mortgage and auto debt, which debtors must pay if they want to keep their homes and cars.

All in all, a better use of your time might be the interactive maps at the NY Fed. These have been upgraded recently to show delinquencies on auto loans, bank cards, mortgages, and even student loans. Check them out here.

Hat tip to former Credit Slips guest blogger, John Rao, for bringing the AO data to my attention.

June Sees Big Drop in Bankruptcy Filing Rate

The U.S. daily bankruptcy filing rate dropped in June by 8.9%, the second-largest monthly drop since 2006. Although bankrupt debtors filed approximately the same number of cases in June as May (about 133,000 - 134,000), there were two more business days in June meaning the daily filing rate actually declined. On a year-over-year basis, June 2010 was a 6.6% increase from June 2009, but this is the lowest year-over-year increase since the wave of cases from the 2005 changes to the bankruptcy law worked their way through the system.

These latest data provide the strongest evidence yet that the U.S. bankruptcy filing rate may be leveling off after nearly five straight years of steady increases. As always, many thanks to Automated Access to Court Electronic Records (AACER) for providing the latest statistics.

U.S. Bankruptcy Filings at Same Level as Before 2005 Law

According to Automated Access to Court Electronic Records (AACER), the U.S. daily bankruptcy filing rate for May was 6,672, which was virtually identical to the rate from April. On a year-over-year basis, the May filing rate increase was only 10.5%. As regular Credit Slips readers know, the year-over-year increase has been declining for some time. A year-over-year increase of 10.5% is small compared to recent history. For example, in May 2009 there was a 41.4% year-over-year increase in the daily bankruptcy filing rate.

For the past five years, the story of the bankruptcy filing rate has been a steady increase, but that story might be changing. Even after adjusting for changes in population (see the graph to the right). U.S. Bankruptcy filings are at the level they were before the 2005 changes to the bankruptcy law, suggesting they might be nearing their "natural" rate. Of course, there is no true "natural" rate of bankruptcy filings, but what I mean by that is that the bankruptcy filing rate may be nearing its limit given the amount of consumer debt that exists. Unless there more consumer debt is injected into the system, bankruptcy filings will have to stop rising. And, consumer debt actually has been steady to falling. None of this is to be sanguine about the number of bankruptcy filings, we are on target to get around 1.65 million bankruptcy filings in 2010.

U.S. Trustee Audits on Debtor Bankruptcy Filings

In March, the Executive Office of the U.S. Trustee (EOUST) released its annual report on audits of individual chapter 7 and chapter 13 cases. The audits identified a "material misstatement" in 22% of the cases examined for fiscal year (FY) 2009. The 2005 changes to the bankruptcy law require these audits and the EOUST annual report. The "material misstatement" rate for FY 2009 is similar to previous reports--21% in FY 2008 and 30% in FY 2007. The rate of "material misstatements" suggested both a public policy issue and a research methodology issue.

The Uneven Rise and Fall of Bankruptcy Filings

Using data from Automated Access to Court Electronic Records (AACER), I recently posted about the 4.2% drop in total bankruptcy filings for the month of April, which came on the heels of a 35% increase in the month of March. These are national figures and mask considerable variations across the country. To look at variation across the country, I compared the total daily bankruptcy filing rate for the first four months of 2010 to the daily filing rate for all of 2009. Also, I used the federal judicial districts as the unit of measurement. Although federal judicial districts are not an ideal geographic breakdown, they do allow for a little bit more nuanced picture than using state-level data and avoid what can be an overwhelming morass of county-level data (which are not readily available anyway)

There are some areas of the country that are experiencing declining or flat bankruptcy filing rates. Of the 91 federal judicial districts (not counting Puerto Rico, Guam, and the Virgin Islands), 22 have experienced a decline or no increase in the bankruptcy filing rate. As the map to the right shows (click on it for a bigger image), the areas with declines (blue) are mainly in the southeast. Nevada stands out as an exception, although that district experienced such huge increases last year, its decline for the first four months may just be a regression to the mean.

The rate of increase across the entire nation was 10%. There are 29 judicial districts that saw a rate of increase greater than 10%. Those judicial districts fall principally in three areas: the plains and west coast, the upper Midwest, and the northeast. Thus, the national statistics do mask a great deal of regional variation. I'll stop there -- my flight is about to get called.

Bankruptcy Filings Drop in April

The daily bankruptcy filing rate in April was 6,631, which was a 4.2% decline from March. The April filing rate was 13.2% higher on a year-over-year basis, but that is the lowest year-over-year increase since the trough after the 2005 changes to the bankruptcy law. As always, a thank you goes to Automated Access to Court Electronic Records (AACER) for supplying the data.

Before we get carried away with what looks like really good news, it is important to keep a few points in perspective. First, April has tended to see declines in the bankruptcy filing rate (see the table to the right). It's all part of the annual cycle of bankruptcy filings. Because February and (especially) March tend to have inflated filing rates as people use their tax refunds to pay for bankruptcy court costs and attorneys fees, April tends to see a decline as the filing rate moves back toward its mean. Second, the monthly bankruptcy filing rates do what a lot of data series do--that is, they move up and down. It's probably not profitable to draw conclusions from one month's worth of bankruptcy data. Indeed, it has only been a few years since information technology made reporting of monthly bankruptcy filing figures easy to do. Before then, we generally only looked at quarterly data. Third, as I'll explore later, there is a great deal of regional variation. Some parts of the country, especially in the west, are still seeing increasing filing rates.

The Congressional Research Service Says No Real Effect from BAPCPA

According to a story in this morning's BNA Bankruptcy Law Reporter, the Congressional Research Service (CRS) released a study stating the 2005 amendments to the bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA) will not permanently reduce the U.S. bankruptcy filing rate. Those findings fit with what we have been seeing the past few months. Even on a per capita basis, the March 2010 bankruptcy filing rate matched the rate from before the 2005 amendments.

CRS reports are not publicly released as a matter of course, and the Bankruptcy Law Reporter is a subscription service. Hence, I can't link you anywhere for this information. If someone does have a copy of the CRS report, I will be happy to make it available here through Credit Slips and/or pass it along to Open CRS.

March Bankruptcy Filings Are Up But Not "Spiking"

Media outlets are reporting that bankruptcy filings climbed sharply in March (see, for example, Duff Wilson's report in the New York Times or the Reuters wire story). Those reports are not wrong, but they don't tell the whole story. As always, many thanks to the ever efficient Automated Access to Court Electronic Records (AACER) for providing the data.

It is true that there were over 158,000 bankruptcy filings in March 2010, and it is also true that this figure represents a 35% increase over February. Long-time Credit Slips readers know the golden rule for monthly bankruptcy filing data: Thou Shall Adjust for the Number of Business Days in the Month. The total monthly bankruptcy filing figures are very sensitive to the number of business days in a month. In fact, since 2007, the number of business days alone explains about 30% of the variance in the month-to-month differences.

There were 23 business days in March as compared to only 19 in February. Once one adjusts for the number of business days, the March filing figures show a much less dramatic increase and an increase that is very much in keeping with both historical cycles and recent trends. March had a daily bankruptcy filing rate just under 6,890, which is a 11.6% increase from the February daily bankruptcy filing rate of 6,170. To put some perspective on the 11.6% increase, consider that February was a 14.2% increase over January. These increases are consistent with the historical cycle of filing rate increases early in the year. If the cycle holds again this year--and there is no reason it shouldn't--the rest of the year should have a relatively constant filing rate until late fall.

Today's Consumers Prefer Chapter 7 Bankruptcy 3 to 1

While the media focuses on the total number of filings, a drill down into those data can also tell us something about the pain that families are suffering. In the last two years, since the foreclosure crisis, the fraction of all consumer filings that are chapter 13 cases has plummeted. In the language of taste tests of soda pop, today's consumers prefer chapter 7 three-to-one over the competition (aka chapter 13). Check out these data from the UST Program. In 06-07, chapter 13s averaged about 38% of all filings. In 08, there was a steep drop to 31%; and in 09, a further drop to 26.5%. These are really big changes in such a large system.

 

The obvious explanation for this fall in chapter 13 is a decline in people trying to save their homes, which we think is a major reason that people chose chapter 13 instead of chapter 7. 

Homeowners in 2008 and 2009 seem to have realized three things: 1) home prices are not going up anytime soon; the "crisis" is  a long-term change in the housing and mortgage markets; 2) they are not going to get a loan modification; the Administration's projected numbers of those who would be helped by HAMP and HARP were fanciful (dare I say "misleading"?); and 3) they simply cannot make their mortgage payments in a world where overtime is being eliminated, unemployment is a fear or reality, increased tax burdens loom as states and localities can't make ends meet, and many other costs remain high (gas, health care, etc.) Many people had these realizations in 2008, and many more had them in 2009. Each year, the share of chapter 13 filings plummeted. And all this, despite BAPCPA's purported intent of driving up chapter 13 filings and making people pay more of their debts.

Homeowners' pessism may not be a bad thing. In a research paper that I authored with John Eggum and Tara Twomey, we found that chapter 13 filers in April 2006 (before the foreclosure crisis) had very high homeownership costs, with more than 70% of homeowners trying to save homes that subsumed more than 30% of their incomes (the long-standing standard for affordable housing). The lower fraction of chapter 13 filings may ultimately translate to a higher rate of plan completion for chapter 13; if consumers are reticient to try to save homes with high costs, maybe more than 1 in 3 chapter 13 plans will make it to completion and a higher fraction of chapter 13 debtors will earn a discharge. Time--a long time, given the five year repayment plans that dominate chapter 13--will tell if the lower proportion of chapter 13 cases as a share of total bankruptcies will correlate with a higher discharge rate for chapter 13.

Half-Empty or Half-Full: The February Bankruptcy Figures

Pick which blog post you want to read:

The year-over-year increase in bankruptcy filings for February hit its lowest mark since the trough in filings after the 2005 changes to the bankruptcy. February saw only 6,170 filings per business day which was a 13.3% increase over February 2009. The rate of increase in bankruptcies is leveling off, possibly indicating a brightening financial picture for the middle class. The February figures continue a trend that has been developing over the past several months, as discussed in the blog post discussing the January figures and its accompanying graph.

Or, if you would prefer:

The daily bankruptcy filings in February (6,170) hit its second-highest point since the 2005 changes to the bankruptcy law. February daily bankruptcy filing rate was a 14.2% increase over January. If the trend continues, 2010 will be a record year for bankruptcy filings, possibly even eclipsing the aberrational year of 2005 when people filed in a rush to beat changes to the bankruptcy law. These figures show a deteriorating financial picture for the middle class.

The figures in both paragraphs are accurate. It's all in how you pitch it, and if you read the blog regularly, you will remember me bemoaning the often hyped-up presentation of the bankruptcy figures just to create sensational headlines. To get a balanced sense of what the bankruptcy filing figures are telling us, there are a few key points always to keep in mind.

Chapter 11 Filing Data Are Noisy

On the heels of Monday's post about the January bankruptcy filing rate, I intended to write something insightful about chapter 11 filings in different places around the United States. After playing with the data, there are at least three problems with such a post. First, it is Thursday already--egad--putting us well past the heels, ankles, or even thighs. Second, "insightful" is a high ambition; "mildly interesting" would be better. Third, chapter 11 data are noisy, making it difficult to impossible to say anything about filing rate trends.

The last point might be of interest to those of us who like to look at filing rate trends, and I thought I would give it some elaboration. The graph shows the monthly number of chapter 11 filings by legal entities (such as corporations, partnerships, and LLCs) in four different federal judicial districts. Note that the scales are different in each graph. The filing rates are from the Bankruptcy Data Project at Harvard (BDP), using data supplied by AACER. My original thought was to look at the chapter 11 filing trends in different locales, perhaps comparing these trends to local economic conditions or consumer bankruptcy filing rates. That's just not going to work, at least not without some further data manipulation.

The problem is that the chapter 11 filing figures show tremendous volatility as shown by the spikes in the chart. All of the four districts--and I picked these because they are higher population districts--have sudden and abnormal surges in chapter 11 filings. For example, in August 2008 legal entities filed 215 chapter 11 petitions in the Central District of California (CACB) as compared to only 48 in July and 31 in September. In fact, in no other month during 2008 were there more than 67 legal entity chapter 11 petitions in this judicial district. This volatility would not be a problem if it was capturing some underlying phenomenon, but it's not.

Bankruptcies Maintain Similar Month-to-Month Rate in January

The January bankruptcy filing basically held steady to December, according to the new bankruptcy statistics now available from Automated Access to Court Electronic Records (AACER). There were just over 102,000 total bankruptcies spread over the nineteen business days in January. That is a daily filing rate of 5,386, a rise of only 1.3% from December's daily filing rate of 5,319. For monthly bankruptcy filing rates, a 1.3% increase probably does not rise above the threshold of statistical noise.

The January 2010 rate is a 20.6% year-over-year increase from January 2009. That may sound like a hugely impressive annual increase, but regular Credit Slips readers will know better. To keep the 20.6% year-over-year increase in perspective, consider that January 2009 had a 31.6% year-over-year increase compared to January 2008 which in turn was a 21.3% increase as compared to January 2007. It's not that double-digit increases in the bankruptcy filing rate are something to be sanguine about. Rather, the rate of increase in the rate of increase appears to be slowing. As the graph shows (click for a larger view), the year-over-year increase started slowing in August of last year. I attribute this slow down to the filing rate just catching up with its "natural" level after the trough following the 2005 changes to the bankruptcy law rather than any fundamental changes in the economic situation.

With one month of data, it is way too early to be making too many projections about annual U.S. filings. When I ran the numbers for January 2010, however, I noticed that the month of January constituted 6.4% of the bankruptcy filings in 2008 and 6.2% of the bankruptcy filings in 2009. Do two years of relatively consistent January numbers make for a trend? If so, then the January 2010 data suggest total annual bankruptcy filings will be 1.60 to 1.65 million. That would be just below my estimate of 1.70 million (or slightly more) filings for 2010.

Anna Nicole Smith --The Bankruptcy That Keeps on Giving

It can really bug me when blogs have posts that are just a naked attempt to draw traffic to their site. These posts always are sure to contain a few words that will attract the attention of search engine users seeking porn or the usual titillating web sites. Seemingly random references to celebrities such as Brittany Spears, Rihanna, or Paris Hilton will be put into the blog. And, worse of all, these naked attempts at self-promotion will use word repetition and appear near the beginning of the web page to optimize their search engine placement. Therefore, I was not surprised to find references to the 15-year old bankruptcy case of the late Anna Nicole Smith, who was often described as sexy and buxom.

On a more serious note, it was somewhat puzzling to see references to this old bankruptcy case. It was dredged up for an AP story that was sourced to "newly released government files" obtained by a Freedom of Information Act (FOIA) request directed to the Department of Justice. The article cites to "the bankruptcy examiner's report." I don't give a rat's pa-too-tee about the contents of the report, but I wondered about the whole FOIA thing. If this was a bankruptcy examiner's report, wouldn't it be part of the public court record? Why did they need to use FOIA? If the court ordered the report filed under seal or otherwise made the report unavailable, then why can a FOIA request effectively circumvent the court order? Or, was this not a bankruptcy examiner's report in the technical sense of the term and, if so, what was it?

How Many Bankruptcy Appeals?

Classes started today. This semester I am teaching Business Bankruptcy, which principally covers chapter 11. We were talking about the bankruptcy court system, a topic that does not always get covered in great detail in the other bankruptcy courses, and the appellate steps in the bankruptcy system. A student asked how many U.S. Court of Appeals cases each year involve bankruptcy.

That was a good question, so I looked it up. What's your guess for the number of U.S. Court of Appeals cases, as reported by the U.S. judiciary, that involve bankruptcy each year? Answer after the jump.

Big Drop in December 2009 Filings--That's RIght, a Big Drop

On a daily basis, December bankruptcy filings fell to 5,304. That is a 12.8% decline from November. According to Automated Access to Court Electronic Records (AACER), there were over 116,600 filings spread over the 22 business days in December. The December figures do represent a 16.2% year-over-year increase, but that is the smallest year-over-year increase since the 2005 changes to the bankruptcy law worked their way through the system. Also, the end of the year tends to see drops in the daily filing rate, as we have seen this year, and the 2009 drops are higher than in previous years. The December 2008 drop was 10.8%

The bottom line is that bankruptcy filings continue their long-term rise, but the rate of increase is slowing. The December 2009 figures are right in line with my estimated increase of 17% for all of 2010 (which would bring us to around 1.7 million total filings annually). This is hardly great news but also hardly awful news considering that the past three years have seen annual increases of around 30%. I've updated the filing trend graph in an attempt to show the long-term trend.

The Wall Street Journal reported "Personal Bankruptcy Filings Rising Fast," a sentiment echoed in many other media reports about the December 2009 bankruptcy figures. Why the discrepancy between these dramatic reports and my more measured report? First, I don't have to sell advertising space or subscriptions. Second, the total December filing figures are actually above the November figures (116,600 as compared to 115,500), but there were three more business days in December. These media reports are relying on figures from the National Bankruptcy Research Center and passed along from the American Bankruptcy Institute, neither of which adjusts for the number of days in a month. Moreover, these reports emphasize the year-over-year increases without placing them in a larger context.

Guesstimate of 2010 Bankruptcy Filings

How many U.S. bankruptcy filings will there be in 2010? A "projection" would imply all sorts of careful analysis with regressions and charts. I don't have that, but I do have a guesstimate based on the trends we have seen recently. Last year, I made a guesstimate of a little under 1.40 million bankruptcy filings, and we are going to have 1.45 million bankruptcy filings in 2009. That's not too bad for a guesstimate.

It's probably best to think about the possible outcomes as a range. Right now, bankruptcy filings are running about 6,000 per day. That is an annual filing rate of just over 1.5 million. The rate of increase in bankruptcy filings is falling, but it is unlikely that bankruptcy filings will actually decrease next year. With the last part of 2009 seeing continued declines in the amount of consumer credit, short-term bankruptcy filing rates should increase as consumers run out of the ability to borrow in order to stave off the day of reckoning. In the long-run, the decline in consumer borrowing will have a negative effect on bankruptcy filing rates--if there is less debt, there is less reason to file bankruptcy--but those effects probably won't be felt until later in 2010 or in 2011. It is unlikely that we will have less than 1.5 million bankruptcy filings in 2010.

November Bankruptcy Filings Decline, Following Seasonal Pattern

According to data from Automated Access to Court Electronic Records ("AACER"), there were about 115,500 total bankruptcy filings in November 2009. This is a drop from October but, contrary to a few reports, not a big drop in filings from October. The raw numbers declined quite a bit--133,300 to 115,500--but November had nineteen business days as compared to twenty-one business days in October. On a daily basis, the November filing rate was 6,079, which is a 4.3% drop from October. The Calculated Risk blog did it exactly right by putting a disclaimer right at the top of its post reporting the raw numbers from a different data source: "The monthly data is noisy and is not adjusted for days in the month."

Moreover, the November drop is keeping with seasonal patterns as shown by the graphs in one of my previous blog posts. The end of the year typically sees a decline in bankruptcy filings. This year's November drop of 4.3% is higher than previous years. Indeed, in 2007 and 2008, November was not a month that saw any drop. The November filing rate has to be coupled with December. To see where bankruptcy filing rates might be headed in the long-term, December 2009 will be an important indicator as well as January - March of 2010, months that normally see big increases.

October Bankruptcy Filings Set New Post-2005 Record

The daily bankruptcy filing rate in October hit 6,200, setting a new record since the 2005 changes to the U.S. bankruptcy law. There were about 130,200 total filings spread over the 21 business days in October. The October filing rate is a 3.7% increase from September and a year-over-year increase of 25.3%. As always, these data are courtesy of Automated Access to Court Electronic Records (AACER) There are two ways to receive this news, both of which have some validity.

First is the "glass is all the way empty" approach, that the rise in the bankruptcy rate reflects the poor health of the economy, results from rising unemployment, and is a sign that the U.S. consumer is not as healthy as recent figures showing GDP growth might suggest. Although I continue to think that the primary short-term driver of ups and downs in the filing rate is the availability of consumer credit, there is no way to look at record bankruptcy filing rates and not see problems for the U.S. consumer.

It also right to look at these data as saying the "glass is only half empty." This is not the same as saying the most recent data should be interpreted optimistically, that is the glass is half full. Rather, it is a subtle and complex story trying to draw a distinction between "dire" and "not good."

The graph to the right shows the month-to-month change for the past three years. (I have omitted 2006 because, and especially for the early months that year, its bankruptcy filing trends were greatly affected by the 2005 changes to the bankruptcy law.). The graph shows seasonality in the bankruptcy filing data -- sharp rises early in the year and a decline toward the end of the year. Part of the seasonality has been an increase in the fall of each year, and the October 2009 figures fit that pattern.

Means Test Changes Won't Mean Much

Controversy abounds these days about whether government programs should adjust downward to reflect cost-of-living and income declines. I’d like to stir up a little controversy here at Credit Slips about Bob Lawless’ recent post that said the drop in median state income will "make it harder to file bankruptcy." First, I don’t quite follow the logic of the concern. Even if the income cut-off drops, "median" still means that half of all people are below the number. I would expect those considering bankruptcy to occupy the same places in the distribution of incomes in their state, regardless of median income fluctuations. So, it seems to me then that the fraction of potential bankruptcy debtors with above-median income would remain constant, even if the median income drops. The legal standard isn't changing, so I don't think it is fair to call the change in median income a "tightening" of the bankruptcy law. Second, even if bankruptcy filers don’t experience the general decline in income of the state’s entire population, the effect of a change in median income on bankruptcy eligibility is likely to be very, very small. Bob admits the change won't affect "a lot" of people but also says it won't be "a few." I think it really will be just a few. Why? Because the fraction of those made ineligible because of the means test is really tiny, and so even over an anticipated 1.5 million bankruptcy cases in 2009, we are looking at a minute change when we talk about adjusting the operation of the means test. In 2008, only 10% of chapter 7 debtors had above-median incomes. And nearly all of that 10% passed the means test once expenses are deducted. According to its report, the U.S. Trustee filed a motion to dismiss for abuse in 2,881 Chapter 7 cases--that works out to 4% of all above-median cases and .4% of all chapter 7 cases. Those numbers are hard to square with any fear that there will be any measurable change in the fraction of people made ineligible for chapter 7 this year. Importantly, these numbers don’t reflect how the very existence of a median income test may discourage people from filing a bankruptcy case or may push people directly to chapter 13 rather than risking an abuse determination. But again, that effect—whatever its magnitude—probably won’t change with median income fluctuation.

Things That Have Piled Up

Long time readers of Credit Slips may have noticed that my blogging has flagged the past few months. That is because my colleagues, Jennifer Robbennolt and Tom Ulen, and I have been working on a text entitled Empirical Methods in Law. It is intended to be a user-friendly guide to the topic, useful (we hope) as both a deskbook and a textbook. It should be out later this year, and I'll try to say more about it.

In the early part of this past week, I was at the annual meeting for the National Conference of Bankruptcy Judges (NCBJ). It was in Las Vegas, which is always fun, but for me I got to meet up with many of my former colleagues at UNLV. The NCBJ meeting is always great. The panels are a good mixture of day-to-day practicalities and the big picture. Plus, you often get to hear what is on the judges' minds. There were about 1800 attendees this year--so I understand--if you're a bankruptcy lawyer it's worth going if you never had a chance. Next year, it's in New Orleans.

Between our book and my trip--oh, and I had to do a faculty workshop on Thursday--a few things piled up.

How Many Bankruptcy Filings Were There in September?

In a post yesterday, I used bankruptcy filing figures from Automated Access to Court Electronic Records (AACER) that showed just over 125,500 total filings in the month of September. A large number of news stories reported there were 124,790 consumer filings in September (e.g., here, here, and here). In turn, these stories were sourced to the American Bankruptcy Institute (ABI), which in turn attributed its data to the National Bankruptcy Research Center. This is too small a difference (about 0.5%) to be explained by a discrepancy between consumer versus total filings.

Both of these figures cannot be right. I have posted about how I have beaten on the AACER data and found them accurate. Also, I wrote to AACER, and they verified their September 2009 number. For these reasons, I believe the AACER report on September bankruptcy filings is accurate. I wonder whether the ABI release did not confuse total filings and consumer filings. It's not that I feel the need to call out a mistake by the media or the ABI on the September figures. Goodness knows that I make a lot of mistakes, and I may be mistaken here. Rather, my attempt to reconcile the two figures reminded me again that the line between consumer and business cases is so thin that it often is not profitable to make the distinction.

Bankruptcy Filings Maintain a Steady State

The good folks at Automated Access to Court Electronic Records (AACER) report there were over 125,500 total bankruptcy filings in September. The daily bankruptcy filing rate was 5,980 for an increase from August of only 0.5%.

Recent media reports and blog posts like to comment on how monthly bankruptcy filings have surged, soared, and skyrocketed. The reality is not as dramatic. The bankruptcy filing rate remains pretty much where it was in March when it was 6,000 filings per day. In fact, from March to September the daily bankruptcy filing rate has been 6,000 filings per day. (Those are not rounded-off figures.) From month-to-month the rate has moved up and down a few percentage points, but that is what monthly rates do.

The dramatic comparisons (and news stories and blog posts) come from year-over-year increases. September 2009 did show a 31% year-over-year increase as compared to September 2008. Guess what? That is the lowest year-over-year increase since September 2008, which showed a year-over-year increase to September 2007 of 28.9%. In turn, September 2007 had a year-over-year increase of 27.9% as compared to 2006. In fact, the average monthly year-over-year increase since January 2007 has been 37.6%. If you want a big headline, all you have to do is report the year-over-year increase. By that measure, however, September 2009 had a lower-than-average year-over-year increase.