Bankruptcy

U.S. Bankruptcy Filings at Same Level as Before 2005 Law

By Bob Lawless

According to Automated Access to Court Electronic Records (AACER), the U.S. daily bankruptcy filing rate for May was 6,672, which was virtually identical to the rate from April. On a year-over-year basis, the May filing rate increase was only 10.5%. As regular Credit Slips readers know, the year-over-year increase has been declining for some time. A year-over-year increase of 10.5% is small compared to recent history. For example, in May 2009 there was a 41.4% year-over-year increase in the daily bankruptcy filing rate.

For the past five years, the story of the bankruptcy filing rate has been a steady increase, but that story might be changing. Even after adjusting for changes in population (see the graph to the right). U.S. Bankruptcy filings are at the level they were before the 2005 changes to the bankruptcy law, suggesting they might be nearing their "natural" rate. Of course, there is no true "natural" rate of bankruptcy filings, but what I mean by that is that the bankruptcy filing rate may be nearing its limit given the amount of consumer debt that exists. Unless there more consumer debt is injected into the system, bankruptcy filings will have to stop rising. And, consumer debt actually has been steady to falling. None of this is to be sanguine about the number of bankruptcy filings, we are on target to get around 1.65 million bankruptcy filings in 2010.

Full post as published by Credit Slips on June 10, 2010 (boomark / email).