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Bankruptcy Filings Continue to Slide in December But Show 8% Increase on Annual Basis

By Bob Lawless

The daily bankruptcy filing rate dropped 7.3% in December, coming on the heels of a 13.3% drop in November. Overall, there were about 114,700 filings in December according to data provided by Epiq Systems. On a year-over-year basis, December 2010 was a 2.1% decline from December 2009.

Overall, bankruptcy filings have been holding steady or declining over the past several months. My prediction for 2011 is that the bankruptcy filing rate will decline by a slight amount. Don't take the bankruptcy figures as an indication that things are going great for the American middle class. We're still looking at near record levels, with a filing rate right now hovering around 5.1 per 1,000 persons compared to an all time high of 5.5 per 1,000 persons. To borrow a line from Paul Krugma's recent column, "Even though we may finally have stopped digging, we?re still near the bottom of a very deep hole." Also, the end of the year customarily sees declines in the bankruptcy filing rate, and we should expect to see increases in the spring.

On an annual basis, the Epiq figures show 1,560,000 for the 2010 calendar year. This represents a 7.8% increase from 2009. To keep this figure in perspective, remember that 2009 was a 32.1% increase from 2008. The annual figure for 2010 is consistent with the leveling off of the bankruptcy filing rate as of late, especially considering that most of the increases in the 2010 filing rate came early in the year.

Why is the annual filing rate not showing the huge increases of 2007-2009? The answer is that the increases in those years were distorted by the abnormally low filing levels after the 2005 changes to the bankruptcy law. The huge annual increases in 2007-2009 primarily reflected a return to "normal" levels of bankruptcy filings. Now that we have returned to those levels, the increases likely will slow down or go away.

Why is the filing rate not going up given the bad economy? More on that topic in my next post.

Full post as published by Credit Slips on January 06, 2011 (boomark / email).