Thursday, October 16, 2008

Ratio of Ch. 13's Is Declining in U.S. After Big Post-BAPCPA Increase, Oregon's Ch. 13 Ratio is Holding Steady

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

As reported in a prior Bulletin on this website entitled Oregon's Slice of the Bankruptcy Pie, although Oregon's recent per capita Chapter 7 filing rate is virtually the same as the national rate, Oregon's per capita Chapter 13 filing rate is much LESS than the national rate. For example, for the 12-month period through the 2nd quarter of this year, in Oregon the Chapter 7 filing rate was 2.03 filings per 1,000 residents, almost the same as the 2.00 national rate, whereas Oregon's Chapter 13 filing rate for that period was .74 filings per 1,000 residents, only about 2/3rds the 1.12 national rate. The complicated question why Oregon's Chapter 13 filing rate is lower than the national one is beyond the scope of this Bulletin, which will instead compare the trends in the ratio of Chapter 13's to Chapter 7's nationally to the trends in Oregon. These two trends are quite different. Examining both of them may tell us more where Oregon is heading than looking just at Oregon's.

Nationally, using nonbusiness cases as tracked by the Administrative Office of the US Courts, after a significant increase in the ratio of Chapter 13's to Chapter 7's immediately after BAPCPA, that ratio has been declining. The first quarter of 2006, the first full quarter after BAPCPA, the ratio of the number of Chapter 13's filed to the number of Chapter 7's was 78%. After falling to 65% by the 1st quarter of 2007 and holding close to that ratio through 2007, it has fallen to 55% in the 1st quarter of 2008 and then down to only 48% by the 2nd quarter.

If this national trend continues, the ratio may well return to its pre-BAPCPA numbers. From 1998 through 2004, using the 2nd quarter of each year for the sake of comparison, the ration held very steady, no lower than 36% and no higher than 42%.
In contrast, the Oregon rate of Chapter 13's, both before and after BAPCPA, has been significantly lower. During the same 1998 through 2004 period, this rate also held relatively (although not quite as) steady in Oregon, with a low of 12% to a high of 20% Chapter 13 filings to Chapter 7 ones, generally between a third to a half of the national ratios.

In Oregon after BAPCPA, in contrast to the national declining trend, there has not been a clear direction in this Chapter 13 ratio. There has been a definite post-BAPCPA increase in the ratio, from the 12% to 20% pre-BAPCPA range to a 27% to 40% range. But after starting the 1st quarter at 28% the ratio bounced around with generally an upward trend until peaking at 40% during the 4th quarter of 2007, with 2008 seeming to trend back downward, with 37% and 32% during the 1st and 2nd quarters of this year respectively.

Bottom Line
So what do these trends or non-trends mean? Nationally, debtors and their attorneys were induced under BAPCPA to turn to Chapter 13's in large numbers at the outset. I speculate that three main factors are bringing the ratio back closer to earlier averages: 1) the system's--primarily debtors' attorneys but also judges, trustees, US trustees--greater familiarity with the new law; 2) the judicial developments interpreting BAPCPA, in some cases whittling away at some of its more onerous provisions; and 3) the worsening economy both qualifying more debtors for Chapter 7 and giving them less means and inclination to use the advantages of Chapter 13 (especially in light of the continued inability to modify mortgages). Whether the Chapter 13 ratio continues to go down will turn on future direction of the economy, and particularly on what tools homeowners will be given to re-negotiate their mortgages, inside or outside of bankruptcy.

As for Oregon, although it started from a much lower pre-BAPCPA Chapter 13 ratio, that ratio nearly doubled after BAPCPA (as did the national averages) and is still at a higher rate than the first three quarters immediately after BAPCPA. But the trend in that ratio seems to be heading downward during 2008, which would be consistent with the reality that Oregon's economy, as measured by home values especially but also other indices, stayed healthier generally about a year longer than the national average.
There are huge regional variations in the application of bankruptcy laws. Case in point: in most of the South, Chapter 13's actually OUTNUMBER Chapter 7's. Contrast that to Oregon's current 1/3rd as many 13's as 7's. There are so many factors at play in any federal district--legal, economic, even the tendencies of a few particular individuals--the five judges and the three Chapter 13 trustees, for instance--that making principled statements about the reasons that a Chapter 13 ratio is high or low is difficult. Predicting what direction that ratio is going to go is that much harder.

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, Bankruptcy Litigation Support for Attorneys,

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

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