August 29, 2006

June 30 Bankruptcy Numbers Released

Filed under: Bankruptcy & Reform,Economy,Taxes & Government — Tom @ 10:25 am

For the quarter ended June 30 (considered third quarter by the courts, as their fiscal year ends on September 30), the official number of bankruptcy filings was 155,833. The detailed stats at the US Bankruptcy Court web site (available as Excel downloads at the indicated link) show that 150,975 were non-business (i.e., individual and family).

The article discussed at this previous post said that total non-business (“individual”) filings was 142,815. I have no explanation for this annoying difference.

Observations in general, from looking at the court’s spreadsheets and at this CardTrak article:

  • This quarter is the last one in which anyone can try to claim that last year’s rush to file ahead of the October 17 effective date of last year’s law change had any role in suppressing the quarterly results.
  • The monthly numbers continue to climb. Annualizing the June-July numbers according to CardTrak would lead one to predict that the ongoing annual filing rate will be 700,000 to 750,000 — about half the annual rate that occurred in 2002 through 2005. Factor in an expected increase in filings that will occur after the upcoming Christmas shopping season, and the annual number will probably be closer to 800,000.
  • The mix of filings has changed substantially. Chapter 13 filings requiring partial payments of creditors for a 3-5 year period, which were 27% and 23% of all filings in the second quarters of 2004 and 2005, respectively, shot up to over 40% of all filings in the second quarter of 2006. The Bankruptcy Abuse and Consumer Protection Act (BAPCPA) specifically intended to force more filers into a partial-payments regimen, and it appears to have succeeded in doing just that. Though it might appear to be obvious that such a change would be for the better, the real results of Chapter 13 filings, which include failures about 60% the time (see Point 9 at link) to carry through with the payment plan, make the desirability of this change very debatable. In fact, I believe that the forced calculations inherent in BAPCPA’s “Means Test” will cause the Chapter 13 failure rate to be even higher.
  • The biggest surprise to me, and something I predicted would go in the other direction, is that the rate of Chapter 13 filings in southeastern districts has gone up. For example, more than half of the second quarter 2006 filings in FL, AL, and GA, were 13s, up from about 26% in 2005. I expected a reduction, because southern districts have traditionally placed many filers in 13s even though they would have qualified for Chapter 7 (total discharge of all unsecured debt). The 2006 result makes me wonder if those districts are still doing that, even though BAPCPA’s formula-driven calculation of who can and cant’ file Chapter 7 supposedly has no flexibility.

There are a few unknowns in this that will be very difficult to get a handle on. First, how many people who figure out that they would be forced to go through Chapter 13 decide not to file after seeing what the Means Test will do them? Second, how many people, either because of the fact that attorneys’ fees under the new law are significantly higher, or because they (erroneously) have the impression that filing for bankruptcy has become impossibly difficult, are deciding not to look into filing? Third, how many people discussed in the first two questions are contributing to what appears to be a significant increase in home foreclosures — and if people who would have filed for bankruptcy under the old law are instead losing their homes under the new law, is that really what we want to see happen?

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