Bankruptcy

Bankruptcy Filing Rates by District, Apr. 2006 to Mar. 2008

By Bob Lawless

The March 2008 bankruptcy data showed that the U.S. average filing rate went over 4,000 per day for the first time since the 2005 bankruptcy. Bankruptcy filings have been steadily rising since the 2005 law's effective date, but national trends can mask local variation. Although bankruptcy data often is aggregated by state, it easily can be broken down to a little bit finer level. Bankruptcy filings are readily available by federal judicial district, for which there are ninety in the fifty states. Some districts occupy an entire state, but looking at districts allows us to see variation within a particular state. As always, these data are courtesy of Automated Access to Court Electronic Records (AACER).

The map to the right shows how bankruptcy filings have increased from April 2006 to March 2008 in each of the ninety federal judicial districts. Yeah, I know, it's really small and illegible, but clicking on the map should open up a much bigger version. The states are color coded into deciles of growth, with the legend appearing in the lower right-hand corner. It won't be the greatest map you'll ever see, but I think it will serve the purpose. Also, no criticism of the selections of color codes will be brooked. I have a heck of time dressing myself in the morning--somebody could make a lot of money selling me Garanimals for Adults--and a coordinated color palette is too much to expect from me.

Before diving into what the heck this all means, a few caveats and explanations are in order. First, I picked April 2006 as the comparison date because it seemed like the first month after the 2005 bankruptcy law during which filings had returned to a somewhat normal pattern. Picking a different date, of course, could produce a different result. Second, every district in the country has had an increase in filing rates since 2006. Thus, even the tenth decile still represents an increase. It's just less of an increase than any other decile. Finally, consider that deciles are a convenient way to group, but they can be arbitrary cutoffs. For example, dividing ninety judicial districts into deciles means the 9th and 10th highest districts are grouped into different deciles. The map is best understood and used for its patterns.

The table to the right shows the precise data that underlie the map. (Again, clicking on the table should bring up a larger, more legible version.) The federal judicial districts with the largest increases line up pretty well, but not precisely, with the greatest increases in foreclosure activity. The district for Nevada leads the nation with a 283.8% increase since April 2006. All four California districts are in the top 10. Arizona is in the second decile, and Florida has all three judicial districts in the top three deciles. All of these areas are continually mentioned in the media as having high foreclosure rates. Also, these areas tend to have high real estate prices compared to the rest of the country, and debtors should be more likely to file bankruptcy the greater the value of their assets.

When graphed out on a map, New England and the mid-Atlantic states also stand out as pockets of increasing bankruptcy filing rates. These are relatively higher income areas as compared to the many other parts in the country. Again, it would make sense that higher income debtors would be more likely to file bankruptcy. Higher incomes and assets mean there is more to protect in a bankruptcy filing. I am not very familiar with the current economic picture for those two parts of the country. Perhaps the comments can illuminate why those areas might be experiencing greater filing rates.

Another area that stood out was the gulf coast areas, near New Orleans where Hurricane Katrina hit. In the fall of 2005, I published a study that showed areas hit by a major hurricane tended to have a higher bankruptcy filing rate about one to two years. The basic finding was that for every two new bankruptcies that occurred in areas unaffected by a major hurricane, there were three new bankruptcies in the judicial district where the hurricane made landfall. These new data seem to confirm that point, although obviously more analysis is needed to say anything definitive. I expected the pattern not to recur with Katrina because so many people had left the area that I expected the increased filings to be dispersed across the country. Interestingly the Middle District of Loiusiana comes in with the fifth largest increase. The Middle District of Louisiana is the Baton Rouge area, while the Eastern District of Louisiana is the New Orleans area. Could this spike in the Middle District have come from New Orleans migrants from Katrina into the Baton Rouge area?

The data pretty much speak for themselves, so I'll stop there. As always, comments are open. It strikes me that it will be useful to hear from people to talk about the situation in their individual districts and how these data do or do not capture the reality of what is happening there. Remember that the map does not say that bankruptcy filings are not up in the Western District of North Carolina, for example. It's just saying that bankruptcy filings are not up in North Carolina as much as compared to Nevada, the Central District of California, or pretty much any other district in the country.

Postscript--For the Garanimal impaired, see here for an explanation. This is how I dress me!

Full post as published by Credit Slips on April 15, 2008 (boomark / email).