Bankruptcy Filings at Historic Lows But Expected to Rise

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Diane Davis

Bankruptcy filings continue to fall to historic lows, but may begin to rise as consumer households take on more debt, bankruptcy scholars predict.

Filings for the 12-month period ending June 30, fell 2.8 percent compared to the previous year, the Administrative Office of the U.S. Courts said July 21.

Filings for the annual period totaled 796,037, compared with 819,159 cases for the year ending in June 2016.

“The drop in filings is not really unexpected,” said Bruce A. Markell, a bankruptcy professor at Northwestern Pritzker School of Law, Chicago, told Bloomberg BNA July 21.

He cited the drop in unemployment from 4.9 percent to 4.4 percent from last year at this time, a decline in public company Chapter 11 cases over last year from 61 to 43, and the continuation of historically low rates of prevailing interest.

“But looming troubles in the car finance market, as well as the prospect of increased interest rates generally, likely will mean that overall filings will rise by this time next year, if not before,” Markell said.

Robert Lawless, of the University of Illinois College of Law, Champaign, Ill., told Bloomberg BNA July 21 the news includes a few caveats.

“Bankruptcy filings are down over the 12-month period ending June 30. Over the last six months and as statistics on their own website show, bankruptcy filing rates have flattened and are even beginning to rise slightly,” Lawless said.

Lawless, who explored the issue in a recent blog, said the “decline in bankruptcy filing rates that began in 2010 appears to be over, and it is likely that bankruptcy filing rates may begin to rise as households are carrying more consumer debt.” The administrative courts’ office releases annual comparisons each quarter. Filings declined last quarter ending March 31, 4.7 percent.

Breakdown of Filings by Chapter

The number of bankruptcies filed by Bankruptcy Code chapter for the 12-month ending June 30, 2017, are as follows:

• Chapter 7 filings totaled 489,011, down from 509,769 in 2016.• Chapter 11 filings totaled 6,999, down from 7,928 in the previous year.• Chapter 12 filings totaled 482, a slight increase from 459 in 2016.• Chapter 13 filings totaled 299,398, down slightly from 300,858 in 2016.

Business v. Non-Business Filings

The majority of bankruptcy filings involve non-business debts. During the 12-month period ending June 30, non-business bankruptcy filings totaled 772,594, down from 793,932 in the previous year.

Business bankruptcy filings during the same 12-month period ending June 30 fell to 23,443, from 25,227 in 2016, the AOUSC said.

In Chapter 7, a debtor’s nonexempt assets are liquidated by a trustee and the proceeds are distributed to creditors.

Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, they must propose a plan that uses future income to repay all or a portion of their debts over a three- to five-year period.

Chapter 11 protects companies or individuals from creditors while they seek to reorganize their debt or liquidate under a plan that must be approved by the bankruptcy court.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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