Bankruptcy Filings Are Down -- Everywhere

With half the year over, there is half of the year still to go. For our few readers who might actually know the quote--yes, that is a tribute to the legendary Murray Walker. Giving our place in the calendar year, it seemed like an appropriate time to look where things stood with bankruptcy filings.

According to data from Epiq Systems, there were 632,130 bankruptcy filings in the first half of 2012. Using a sophisticated mathematical model where I multiple that figure by two, I get a projection of approximately 1.25 million bankruptcy filings for the 2012 calendar year. That projection is slightly too high because filings in the first half of a year historically are slightly larger than in the second half. If the past few years are a good guide, it looks like there will be just above or below 1.2 million filings in 2012. If that projection holds, there will be a 13.0% year-over-year decline in the bankruptcy filing rate.

My original intention for this post was to write about the states where bankruptcy filings have defied the trend and have actually increased. The facts, however, got in the way. For the first six months, bankruptcy rates have fallen in every single state. The biggest declines are in some of the places that had the biggest jumps in bankruptcy filings in the past few years: Nevada (-27%), Arizona (-23%), and California (-22%). These declines look a lot like regression to the mean. Other states with big declines (Hawaii, Alaska, North Dakota) are states with small populations and low bankruptcy filing rates, and these declines look a lot like the statistical noise that comes with low base rates and the relatively higher variance that must follow.

To my eye, the state-to-state differences look to be mechanical results from the broader national pattern, and about the most insightful thing I can say about the geographic variation is "what goes up must eventually come down." At the aggregate national level, the trend most likely continues to be a result of better consumer credit markets giving consumers the option to continue borrowing rather than going to bankruptcy court. We are currently running at a bankruptcy filing rate of 4.46 per 1,000 persons, off substantially from 2004 when the rate was 5.44 per 1,000 persons. If consumers continue to have easier access to credit markets, the bankruptcy filing rate should continue its downward trend for the foreseeable future.