Bankruptcy Filings Continue Slow Decline;Close to Bottom?

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By Diane Davis

Oct. 26 — Bankruptcy filings for the 12-month period ending Sept. 30, 2016, were the lowest for any 12-month period since December 2007, according to new statistics released Oct. 26 by the Administrative Office of the U.S. Courts (AOUSC).

The September 2016 annual bankruptcy filings totaled 805,580, compared with 860,182 cases filed in the previous year, the AOUSC said.

Hit Rock Bottom?

“The numbers suggest that bankruptcies are about to hit the bottom,” Professor Robert Lawless, University of Illinois, told Bloomberg BNA Oct. 26.

The “rate of decline in bankruptcy filings has been pretty steady,” Lawless said. “We’re not at the bottom yet, but pretty close to it,” he said.

The Federal Reserve’s numbers on household debt are related to bankruptcy filings, Lawless said. “As household debt goes up, bankruptcy filings will go up,” he said.

A “national wave of bankruptcies that began in 2008" reached a peak in September 2010, when nearly 1.6 million bankruptcies were filed, the AOUSC report said.

Bankruptcy filings fell by less than 10 percent for the third straight quarter, with filings falling by 6.3 percent for the 12-month period ending Sept. 30, 2016, compared with the previous year, the AOUSC statistics said. The three most recent reports follow a four-year period in which consecutive double-digit declines occurred in every reporting period since December 2011.

The AOUSC’s report shows a slight increase in Chapters 11 and 12, Lawless said. The increase in Chapter 11s is primarily attributable to the oil and gas industry bankruptcy filings, according to Lawless. It’s also important to keep in mind that with Chapter 11 cases, all related entities are counted as separate entities for bankruptcy filing purposes, he said.

Chapter 11 reorganization is for businesses or individuals whose debts exceed the statutory thresholds for Chapter 13 bankruptcy, and Chapter 12 is designed to protect family farmers and family fishermen.

Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but they must propose a plan that uses future income to repay a portion of their debts over a three- to five year period. In Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated and the proceeds are distributed to creditors.

Business v. Non-Business

The majority of bankruptcy filings involve non-business debts. During the 12-month period ending Sept. 30, 2016, non-business bankruptcy filings totaled 781,123, down from 835,197 non-business bankruptcy filings in the previous year.

Business filings during the 12-month period ending Sept. 30, 2016, fell to 24,457, from 24,985 in the previous year, the AOUSC said.

Breakdown by Chapter

The number of bankruptcies filed by Bankruptcy Code chapter for the 12- month period ending Sept. 30, 2016, are as follows:

  •  Chapter 7 filings totaled 498,367, down from 550,036 in the previous year.
  •  Chapter 11 filings totaled 7,450, an increase from 7,040 in the previous year.
  •  Chapter 12 filings totaled 458, an increase from 383 in the previous year.
  •  Chapter 13 filings totaled 299,150, down from 302,642 in the previous year.

To contact the reporter on this story: Diane Davis in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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