Bankruptcy

Bankruptcy Filings Rise 32% in 2008

By Bob Lawless

Bankruptcy filings in 2008 rose 32% as compared to 2007 according to data from Automated Access to Court Electronic Records (AACER). There were just under 1.1 million total bankruptcy filings in 2008 as compared to 827,000 in 2007. Those figures count all bankruptcy filings. The increase is attributable not only to the worsening economic conditions, especially the unavailability of further credit, but also to the generally increasing trend of bankruptcy filings from their nadir just after passage of the 2005 bankruptcy law.

During the last month of 2008, bankruptcy filings actually declined as compared to the previous month. In December 2008, there were 4,543 filings per business day, a decline of 10.5% from November 2008 when filings per business day were 5,078. (See the data note below for an explanation about the December 2008 calculation for filings per day). The decline follows a historical pattern of declining filings in the month of December and is not surprising. As the graph to the right shows, both December 2006 and December 2007 showed declines in filings as compared to the previous month.

The 10.5% decline of December 2008 is larger than the declines in December 2006 (0.5% decline) and December 2007 (6.4% decline), but I think that is likely because of the large increases in October and November 2008. Rather than representing some heretofore undetected brightening of the economic picture, bankruptcy filings declined more dramatically in December 2008 than in previous years because they had further to fall. The economic news continues unabated with a bleak outlook, and there is no reason to think the December 2008 decline is anything more than a repeat of the usual pattern.

In my last post on bankruptcy filings, I projected a little under 1.4 million total filings for the 2009 calendar year, and there is nothing in the December numbers that would make me back away from that prediction. In the short-term, I expect bankruptcy filing rate increases in January and February 2009.

DATA NOTE: Although the advent of electronic filings means attorneys can file bankruptcy petitions almost at any time, the number of bankruptcy filings in a month is very sensitive to the number of business days in that month. Months with more business days see more bankruptcy filings. Hence, I always express monthly bankruptcy filings as the number of filings per business day. December 2008 was scheduled to have 22 business days, but on December 12, President Bush issued an Executive Order closing all executive branch departments on December 26. Many federal courts followed the president's order. Consequently, the number of business days in December 2008 was actually only 21. A similar order had been issued for December 24, 2007, and for consistency changed the number of business days for December 2007 to 19 for purposes of reporting data on Credit Slips. Therefore, the graph accompanying this post shows a slightly different datapoint for December 2007 than previously reported.

Full post as published by Credit Slips on January 05, 2009 (boomark / email).