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Bankruptcy filings continue downward trend. Good news?

June 27, 2011 by Andy Toth-Fejel

Last month, May 2011, saw the largest year-to-year decline in monthly bankruptcy filing rates in 5 years. This is a drop of 12.5% from May 2010. This is not some statistical fluke—this was the 7th straight month of year-to-year declines in the bankruptcy filing rate. A leading expert on bankruptcy data, Univ. of Illinois Prof. Robert M. Lawless, predicts that bankruptcy filings will be down 5-10% for the 2011 calendar year compared to 2010.

The total number of bankruptcy filings had climbed significantly each year from 2006 through last year:

2006                  590,737

2007                  827,013

2008                1,095,344

2009                1,447,534

2010                1,560,570

But to put this in perspective, last year was nowhere close to a record. Every single year from 2002 through 2005 there were more bankruptcy filings than last year, with more than 2 million  doing so in 2005.

However, the number of filers that year was hugely influenced by one event: a major amendment of the bankruptcy laws that went into effect in October 2005. This change in the law was expected to make it harder to file bankruptcy. Because there had been years of wrangling in Congress about this amendment, most people knew about it. And since it became effective many months after the bill was signed by President Bush, there was lots of opportunity for people to file before the effective date. There a massive rush to take advantage of the prior law. Then, because just about anybody who anticipated needing to file did so before that deadline, in the following year of 2006 LESS THAN A THIRD as many filed as had in 2005.

Although the economy during 2008 through 2010 was significantly worse than during 2002 through 2004, less people filed bankruptcy. That’s either because the amendment made it legally more difficult or less advantageous to do so, or else because many potential bankruptcy filers BELIEVE this and somehow get by without filing bankruptcy. Or simply put it off longer.

 

Filed Under: Bankruptcy Data

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