Annual U.S. Bankruptcy Filings on Track for 6.7% Decline

It has been a while since I last checked in on bankruptcy filing rates. The arrival of the latest figures from Epiq Systems was a welcome reminder to do so.

We are at the halfway point for the year, and the U.S. has had 398,000 bankruptcy filings. It is tempting to simply double that figure to get an estimate of what filings will total for all of 2016, but that estimate would be too high. Bankruptcy filings are somewhat more concentrated in the first six months of the calendar, which have accounted for about 52% of yearly filings for the past two years. Extrapolating from recent experience would mean there will be 764,000 filings for the calendar year.

That would be a 6.7% decline in filings from 2015. Back in January, I forecasted a 5% decline or 780,000 filings for 2915. Given that we are well within the confidence interval of that estimate, I will take that. Although we still have half the year left to go, the model I use for the forecasting looks to be holding up.

In terms of trends, we have had 68 straight months of year-over-year declines in the daily filing rate. The annualized filing rate per 1,000 currently stands at 2.46. The graph shows a 12-month moving average for filings per 1,000 persons since 2008. The discerning eye will note the tail of the graph is flattening. The year-over-year decline is slowing. Where we saw double-digit declines in 2013-14, the declines are in the 5%-8% figures now.

To give a sense of how historically low the current filing rate is, the table lists the filing rate per 1,000 for the past 30 years (on a July - June basis). One has to go back to 1988 to find a filing rate that low. The current filing rate is lower than even 2007, which contains the trough in the filing rate after the rush to beat the effective date of the 2005 bankruptcy law.

My hunch is that filings will increase slightly in the coming years but not greatly. The great driver of bankruptcy filings is debt -- quite insightful, I know. Nondischargeable student loan debt has become an increasing component of consumer debt, meaning there are fewer reasons to file bankruptcy. Over the last year, non-student loan consumer debt has increased by about 10%. That will eventually show up in more bankruptcy filings in two or three years -- not 10% more filings but an increase or at least a stop to the declining filing rate.