Personal bankruptcies were down in 2011, for the first time in several years, according to preliminary reports. The estimate is that 1.35 million personal bankruptcies were filed in the United States, which was down approximately 12.5% from 2010. As the Boston bankruptcy lawyer reported on January 5, 2011 in our bostonbankrutpcylawyerblog.com bankruptcies were up in 2010 by 9%, with over 1.55 million being filed in 2010. In 2005, the year the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect, there were over 2 million personal bankruptcies filed.
In Massachusetts, the specifics look like this: 19,777 total bankruptcies were filed in 2011. Of those, 75% were Massachusetts Chapter 7 personal bankruptcies and 25% were Chapter 13 bankruptcies. With a population of over 6.5 million, that is a rate of 300 bankruptcies per capita. We ranked 33rd of the 50 states and District of Columbia in rate per capita. The Massachusetts rate decrease in bankruptcy filings was 0.52%, significantly lower than the rate of decrease in the rest of the country.
The only state with an increase in bankruptcies in 2011 was Utah, where the rate was up a nominal 1%. The states with the largest decreases in bankruptcy rates were Nevada, where the decrease was 19% and Florida, where the decrease was 16%. Still, there are a lot of states with high bankruptcy rates, including California, Colorado, Tennessee, Alabama and Georgia.
In an interesting article published by Boy Lawless in Credit Slips in December 2010, it was predicted that there would be 1.457 million bankruptcy filings, based on a statistical analysis. We’re not going to give a scholarly review of Mr. Lawless’ analysis, but it seems to be fairly accurate, and, more significantly, Mr. Lawless says that the trend is what we should watch. His notion of the trend in bankruptcies decreasing was spot on. Lawless, a professor at the University of Illinois College of Law, has said that “consumer credit” is the “most significant indicator” of what drives bankruptcy rates.
Thus, we looked at consumer debt in the US. Credit card debt, which decreased between 2008 an 2010, increased in 2011. According to the Federal Reserve report on consumer debt, credit card debt increased 9% in 2011. Another measure of consumer debt, student loan debt, was up in 2011, with the total being $845 billion when measured in the middle of last year. This should be watched carefully because, unlike credit card debt, student loans are very difficult to discharge in bankruptcy.
Professor Lawless is proposing that federal bankruptcy petitions include a question about the race of the filer. This is because of recent evidence that black bankruptcy petitioners have been found to file Chapter 13 bankruptcies disproportionate to white filers.
In our sister country to the north, Canada, bankruptcy statistics can be instructive. Their swings tend to be less dramatic than ours. According to the Office of the Superintendent of Bankruptcy in Canada, the rate of bankruptcy in Canada fell by approximately 8.1% last year. Further, in Canada, there more folks filing “consumer proposals,” a Chapter 13 style bankruptcy, in which a percentage of the debt is paid back.