Bankruptcies Are Up Sharply in the New Year

Visa's Bankruptcy Notification Service tracks weekly filings for personal bankruptcy in courts across the country. In the first six weeks of 2001 (as of February 11, 2001), 139,358 petitions had been filed in U.S. bankruptcy courts, up a whopping 24.7% from the 111,747 petitions filed during the first six weeks of 2000. The chart below illustrates weekly filings for the past 3 years.

Printer-Friendly Chart

Most analysts had been predicting an increase in filings for 2001, with forecasts calling for 10% to 20% growth. Certainly, some increase in bankruptcies is consistent with deteriorating economic news and declines in consumer confidence, as well as the rising delinquency rates on consumer loans in the fourth quarter of 2000. Still, the growth in filings during the early weeks of the new year is surprisingly strong. Some analysts have speculated a relationship between filings and rising expectations for quick passage of bankruptcy reform legislation which would make it tougher to qualify for a Chapter 7 discharge. Some debtors' attorneys may have been counseling the clients to file sooner rather than later to lock in the current rules. However, passage of bankruptcy reform legislation has seemed imminent several times over the past two years and has not triggered the spike in filings we currently observe. A more plausible explanation links filings to the plunge in consumer confidence during the first 60 days of 2001. If this is correct, a revival in confidence with the coming spring should markedly slow the growth in filings. Stay tuned.