Recent developments in the subprime finance sector and elsewhere suggest that the collapse of the biggest bubble of them all, credit, is beginning to gather pace. It's no longer just delinquencies and foreclosures that are on the rise. So, too, are attempts to seek relief by way of the legal system. According to the Credit Slips blog, "Bankruptcy Filings [Were] Up 18% in February 2007."
The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It's actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January.
Certainly, one month's worth of filing data does not a trend make. Also, these number are for total bankruptcy filings, not consumer filings alone. Remember, however, that according to the government, business filings are a minuscule percentage of total bankruptcy filings, and that problems with the way the government counts business filings may make total bankruptcy filings are more reliable data point anyway, as I have discussed previously. With those quite important caveats about the data in mind, there are a few things that strike me about AACER's statistics.
First, the increasing numbers of filings are completely consistent with the "word on the street." Privately, bankruptcy attorneys have told me they have seen increased numbers of consumers seeking bankruptcy. Although the 2005 bankruptcy law substantially lowered the number of bankruptcy filers in its immediate wake, we know that filings have been on a steady increase since the law's effective date, and these latest numbers are further confirmation of that fact. I do not predict that filing levels soon will return to the same numbers as they were just before the 2005 bankruptcy law was enacted (about 1,500,000 per year).
Still, we are on a pace to see substantial increases in the number of annual bankruptcy filings. If we apply the daily filing figure from February throughout the remainder of the year, make the conservative (and likely unrealistic) assumption that there will be no further increases in the filing rate for the rest of the year, and then add the numbers we already know from January and February, there will be approximately 765,000 total bankruptcy filings in the U.S. during 2007. The AACER folks tell me there were approximately 585,000 total bankruptcy filings in 2006. (As of this writing, the government figures have not been released.) Thus, we are on a pace for a 30.7% increase in bankruptcy filings during the 2007 calendar year. If the bankruptcy filing rate continues to rise beyond the daily rate in February, U.S. bankruptcy filings for 2007 could come close to or top 1,000,000.
Given the extremely debtor-unfriendly nature of the so-called bankruptcy law reforms, the recent uptick in filings may mean that those who are under the gun are so desperate that they have little choice but to throw themselves on the mercy of the less-than-accomodating courts.
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