Bankruptcies Continue to Surge

It's beginning to look like the surge in personal bankruptcy filings is a symptom of increasing household financial distress, rather than a one-time acceleration triggered by the pending enactment of reform legislation. In recent months we have been reporting to you the statistics compiled by Visa U.S.A.'s Bankruptcy Notification Service. Now the Administrative Office of the U.S. Courts confirms that personal bankruptcy filings in the first quarter of 2001 experienced the strongest growth in 4 years. For the 3 months ending March 31, 2001, personal bankruptcies in the U.S. and its territories were up 17.8% compared to the same quarter in 2000. Of the 356,836 petitions filed during the quarter, 71.4% were filed under Chapter 7.

Significantly, the increase was broad-based across the U.S. Of the 91 bankruptcy judicial districts that make up the 50 states, District of Columbia and Puerto Rico, only 4 districts experienced declines in petition volume, relative to first quarter, 2000. Curiously, 3 of those districts were in California, which led the nation in bankruptcy growth during the 1990s and is currently being buffeted by skyrocketing energy prices. We expect California districts will soon see rising volumes too as the energy price shocks continue to assault household budgets. The nearby table displays first quarter 2001 petition volume and growth rates for each state and bankruptcy district. A scan of the table reveals that the hardest hit areas among the more populous states appear to be concentrated in the Midwest. Of the large states, Michigan's 30.5% growth rate led the pack, followed by Ohio (28.0%), Tennessee (25.2%) and Indiana (23.0%).

What has happened to filings since the end of March? One advantage of the data from Visa's Bankruptcy Notification Service is their timely availability. The chart below displays weekly filings through May 19, 2001. The news has not improved. Personal bankruptcies were up by 26.1% relative to the same 20-week period in 2000. As of May 19th, there had been 581,105 petitions filed, compared to 460,711 for the same period in 2000.

The chart reveals a seasonal, summer-time decline in filings in both 1999 and 2000. Creditors can only hope that the pattern repeats this year. However, working against it may be a renewed, "beat-the-new-law" rush to file if and when the bankruptcy reform legislation moves out of the House-Senate conference committee and on for the President's signature. As of the Memorial Day holiday, there were no positive signs that such movement was imminent. Senate Finance Committee Chairman Charles Grassley told Congress Daily that conference committee discussions were on hold and that "the bankruptcy legislation had not been on the agenda at leadership meetings lately."

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