Bankruptcy

February 2008 Filing Rates Hit Post-BAPCPA High

By Bob Lawless

This just in. Bankruptcy filings in the U.S. are now at their highest daily rate since the 2005 changes to the federal bankruptcy law. According to Automated Access to Court Electronic Records (AACER), there were 79,198 bankruptcy filings in February 2008. Spread over the twenty business days in February, that is 3,959 filings per day. That's a 28% increase over the same time period one year before and an 18% increase over January 2008. Is this a big deal? Yes and no.

Some persons may seize on this news as further evidence of the decaying economy but that would be a mistake. There may be plenty of evidence that the U.S. economy is headed toward recession, but the February 2008 bankruptcy filing rate alone should not be taken as part of that evidence. Put simply, the monthly filing bankruptcy rate goes up and down. One month of data does not tell us a lot by itself. Perhaps more importantly, the monthly bankruptcy filing rate has a lot of cyclicality, and bankruptcy filing rates tend to rise in February (as discussed here). While we shouldn't overreact to this news, we probably also should not dismiss it either.

What is important here is the overall trend line since January 2006. The latest news is consistent with the steady rise in bankruptcy filings since the 2005 law took effect (and which I previously discussed here) and further reinforces my prediction that we will see more than 1,000,000 bankruptcy filings in 2008. That is a big number for a system after a law that made bankruptcy more expensive, more time-intensive, and less effective for the consumers who use it. Although Congress tried to restrict access to the bankruptcy courthouse, the upward trend indicates that consumers are still hurting financially.

The regional variation is interesting also. As compared to the monthly average for all of 2007, the state with the biggest increase for the first two months of 2008 is California. Florida and Nevada also appear in the top 10, and all three of these states are consistent with the story that the foreclosure crisis is pushing people into bankruptcy. Virginia, Maryland, Delaware and the District of Columbia also appear in the top 10, suggesting a regional problem. Connecticut, Rhode Island, and Kentucky are the other states with in the top 10.

Sixteen states have experienced a decrease in bankruptcy filings during the first two months of 2008 as compared to the monthly average for 2007: Colorado, Alaska, Missouri, Oregon, Idaho, West Virginia, Indiana, Ohio, Texas, North Dakota, Iowa, Maine, South Dakota, Kansas, Montana, and Wyoming.

Full post as published by Credit Slips on March 03, 2008 (boomark / email).