The U.S. bankruptcy filing rate declined again in January 2009. This was the second straight month of declines, when bankruptcy filings are computed on a daily basis as should be done.
Don't be fooled, however, into thinking the news is some suggestion that we are on the road to economic recovery. The decline is a seasonal aberration, and the data hint that the filing rate will again take off in the early spring, as has occurred in the past several years. Before we get to the likely trend, let me report the numbers.According to data from Automated Access to Court Electronic Records (AACER), there were 89,037 bankruptcy filings spread over the twenty business days in the month of January. That is a filing rate of 4,452 filings per business day, which is a decline of 2.4% from the December 2008 rate of 4,563 filings per business day. The December 2008 rate was in turn a decline of 10.2% from the November 2008 rate of 5,078 filings per business day.
The December and January declines are consistent with a seasonal pattern of lower bankruptcy filings in these months. We saw this pattern in 2006, 2007, 2008, and now apparently 2009. The reasons for the seasonal pattern are not well established. I think it stems from the holiday season, which temporarily lowers filing rates as attorneys work fewer hours and persons simply put off the emotionally draining task of declaring bankruptcy. Bankruptcy lawyers have told me that the seasonal pattern might stem from persons waiting to receive income tax refunds so they have funds to pay an attorney. Maybe both reasons have some explanatory power? The comments are open for further thoughts.
Whatever the reason, the pattern is clear. Bankruptcy filings have climbed in the spring of 2006-2008, and there are reasons to think this historical pattern will hold again in 2009. The January bankruptcy filings were not spread evenly through the month but were clumped toward the end. The last ten days of January had a filing rate of 5,363 per business day. That rate would represent an increase of 17.5% over December and even a 5.6% increase over November 2008, which was the first month since bankruptcy filings were more than 5,000/day since enactment of the 2005 bankruptcy law.
It is dangerous to draw hard conclusions from the monthly ups and downs of the bankruptcy filing rate let alone from the ups and downs of only ten days. The data have a lot of noise and random fluctuations. The evidence, however, strongly shows a seasonal pattern in the monthly filing rate, and the seasonal pattern appears to have shown up again in 2009. The last ten days of data are consistent with that pattern. For these reasons, I remain confident in my earlier prediction of around 1.4 million bankruptcy filings for the 2009 calendar year and which would require a daily average of about 5,600 bankruptcy filings. The most recent data show that we already are very close to that figure. If anything, the estimate might prove to be too low.
