Thursday, September 4, 2008

The National Bankruptcy Statistics Demystified

by Andrew Toth-Fejel, Bankrupcty Litigation Support for Attorneys,

Every few months we see the headlines about how the bankruptcy filing numbers are up, yet again. Indeed a few days ago an Associated Press story was headlined in the LosAngeles Times with "U.S. Bankruptcy Filings Rise 28.9%". This isolated statistic referred to the increase in filings from the one-year period of July 1, 2006 through June 30, 2007 to the same period one year later, July 1, 2007 through June 30, 2008. But everybody in the bankruptcy world knows that such year-to-year comparisons are suspect because the October 2005 BAPCPA's shock waves were being strongly felt through the second half of 2006 and arguably for much longer. So comparing these one-year periods is not very enlightening.

What WOULD be enlightening would be the answers to the following questions:

1) How do the present filing numbers compare to the filings before BAPCPA?
2) How do the current percentage increases compare to previous periods of increase?

1) The current quarterly numbers for cases commenced are not only low compared to the year or two right before October 2005, but as much as they have increased over the two years the numbers are still well below the quarterly numbers of even a decade ago.

276,510 bankruptcies were filed in the United States during the most recent quarter, April through June 2008. The number of filings has significantly increased every single quarter since the 1st quarter of 2006, immediately after BAPCPA's arrival, from a low of 116,771 filings that quarter. As is well known, during the two or three months before the law's change in mid-October 2005 there were a huge volume of filings, most dramatically impacting the 3rd and 4th quarters of 2005, with 542,002 and 667,431 cases filed respectively.

What is less remembered is that filings were also relatively high for many quarters, and even for years, before that, perhaps spurned on during this extended period by the increasing indications that BAPCPA was finally actually going to be passed after all the "false starts" going back to the mid- and late 1990's. The second quarter of 2005 had 467,333 filings, 69% more than the 2nd quarter of this year--perhaps not surprising because BAPCPA was signed into law in April 2005, with a 6-month delay in its effective date, so the rush was on from that point forward. But the number of filings were also comparatively high for years earlier: the 2nd quarters of 2004, 2003, 2002 and 2001 ALL had filings in excess of 400,000, the lowest being in 2001 at 400,394, still 45% more than this current year's 2nd quarter.
(I use the 2nd quarters for comparisons to minimize seasonal variations.)

Even a full dozen years ago, the 2nd quarter of 1996, the lowest pre-BAPCPA 2nd quarter throughout this whole period, had 297,162 filings, which is still 7.5% more than the current 2nd quarter. The average number of filings during the 2nd quarter from 1996 through 2000 was about 341,000, about 24% more than the current year's 2nd quarter filings of 276,510. We are only now beginning to approach the filing numbers of a dozen years ago.

Furthermore, these comparisons are of the absolute numbers of cases filed, without taking into account the interim increase in the nation's population. And the current filing numbers seem all the lower when considering the relatively strong economy during much of the last dozen years, and how strong home values were along with the availability of refinancing credit for people to borrow their way out of debt. It seems very likely that the filing numbers will continue to climb for at least the near term as potential filers become more aware of the continued availability of bankruptcy options and even as the large volume of people who filed in 2004 and 2005, and in the high-volume years earlier, become eligible to seek relief again.

2) The percentage increase in filings from the 1st quarter of 2006 through last quarter IS higher than any other 10-quarter period in the last dozen years, INCLUDING the period just before BAPCPA's arrival. The increase from 1st quarter 2005 until last quarter was 137%; the increase during the 10-quarters approaching and including BAPCPA's effective date was about a 50% increase.

However, considering the unprecedented drop-off in filings during especially the first year or so after BAPCPA, including them does not seem to lead to a useful comparison. So looking instead at the increase in filings from the 2nd quarter 2007 to the 2nd quarter 2008, 210,449 to 276,510, yields a 31% increase, STILL by far larger than any other 2nd quarter to 2nd quarter year-to-year increase in the last dozen years, more than during the dot-com bust, the aftermath of 9-11, or even from 2004 to 2005 in the run-up to BAPCPA. This steep increase seems to indicate a capacity for continued increases in filings, the extent to which depends on the economy. and particularly on the housing and credit markets. And it also depends on the elusive answer to that perennial question: how much did the BAPCPA overhaul truly reduce the ability or inclination for people to file bankruptcy?

Lastly, another set of important questions about the bankruptcy statistics, of even greater practical interest that these national ones, are about the trends and the truth in the numbers behind OREGON bankruptcies. See tomorrow morning's Bulletin for that story.

Source: The calculations reflected in this Bulletin were based on data provided by the Administrative Office of the U.S. Courts.

by Andrew Toth-Fejel, of Bankruptcy Litigation Support for Attorneys,

© 2008 Bankruptcy Litigation Support for Attorneys