Bankruptcy

Bankruptcy Filings Climb in February, But Looks Can Be Deceiving

By Bob Lawless

There were a total of 109,178 bankruptcy filings in the month of February for a rate of 5,750 new cases per day. The February figure represents a 12.6% increase from March. Although bankruptcy filings seem to be up sharply in February, looks are deceiving. In reality, the 12.6% increase in February supports the idea that, on an annual basis, bankruptcy filings actually will decline in 2011. As always, the data for this analysis is courtesy of Epiq Systems.

In recent years, the first two months of the year have accounted for about 13.5% - 14.0% of all bankruptcy filings for the year. Extrapolating from the first two months of 2011, this recent history would indicate that we will have just under 1.50 million bankruptcies in 2011, a small decline from the 1.56 in 2010.

On a year-over-year basis, the daily filing rate in February 2011 represented a 7.4% decline from February 2010. To the right, I have updated an old chart showing the trend in the year-over-year change. November 2010 was the first time in four years that the bankruptcy filing rate had declined on a year-over-year basis. We now have had four straight months of year-over-year declines. The year-over-year percentages suggest the current trend is for a decline of about 5.0% - 7.0%. (Before anyone interprets the declining bankruptcy rate as a sign of some sort of economic recovery, read this old blog post.)

I have a prediction for March: there will be a big monthly increase next month. Bankruptcy filings historically climb in February, March, and even April. As Ronald Mann and Katie Porter explain in their paper, Saving Up for Bankruptcy, one reason for this is that people use their income tax refunds to pay the attorney's and court fees associated with a bankruptcy filing. In 2011, the IRS had a few delays in processing tax refunds because of some last-minute changes to the tax laws, and the delay led to a few backlogs. Thus, although it looks as if there was some "tax refund effect" for February bankruptcy filings, I am guessing that it may be extra large for March.

Full post as published by Credit Slips on March 07, 2011 (boomark / email).