Bankruptcy Filings Surged in First Quarter of 2007
WASHINGTON (AP) — Spurred by a sputtering U.S. economy, bankruptcy filings are on the rise in 2007, an increase analysts predict will continue.
In the first three months of 2007, business bankruptcy filings rose 60 percent and consumer filings increased by 70 percent, compared with the first three months of 2006, according to data collected by Jupiter eSources LLC, an Oklahoma City company that runs a bankruptcy database called Automated Access to Court Electronic Records, or AACER.
"Bankruptcies are definitely on the rise," said Jupiter Chief Manager Michael A. Bickford. "There’s no question."
The AACER database, which receives daily filing updates from every court in the nation, reports that overall daily filing averages have climbed by 26 percent since January. On average, 3,316 cases were filed each day last month. AACER categorizes consumer filings differently than the PACER system run by the Administrative Office of the U.S. Courts, which accounts for slight number variations.
Bankruptcy filings hit an all-time low in 2006, when major corporations enjoyed fat profits and consumer spending was high. Analysts said that drop in filings also reflected a tough new bankruptcy law that took effect in October 2005. The law made bankruptcy an unattractive option for consumers and businesses alike.
The drop, accordingly, was interpreted by some framers of the new laws as a vindication of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. In a statement last year, Sen. Charles Grassley, R-Iowa, said "It’s fair to say that bankruptcy reform has been a success for our economy."
Many bankruptcy experts, however, argued that a strong rebound in filings was inevitable as the economy lost steam. Experts attribute the current upswing in filings to the skyrocketing rate of home foreclosures and dwindling refinancing rates.
"It looks to me like the economy is deteriorating," said Bickford. "A prevalent factor is the increase in residential defaults on home mortgages and the subprime situation that’s going on."
On Monday, subprime lender New Century Financial Corp. filed for Chapter 11 bankruptcy protection. At least four others, People’s Choice Home Loan Inc., Mortgage Lenders Network USA Inc., ResMae Mortgage Corp. and Ownit Mortgage Solutions Inc., have also filed for bankruptcy. The subprime market is threatened by lessening liquidity and increasing defaults
Bickford said total U.S. bankruptcy filings could reach 1 million cases this year, signaling a return to levels seen before the new bankruptcy laws took effect.
The American Bankruptcy Institute, which gets its information from the Administrative Office of the U.S. Courts, reports a 46 percent filing increase from January to March. Last month boasted the highest filing rate in a single month since the Bankruptcy Prevention Act and Consumer Protection Act took affect in 2005.
Data from the Alexandria, Va., organization shows a steady increase in filings so far in 2007, with about 50,000 cases filed in January, 55,000 in February and more than 73,000 in March.
"The next boom here is coming, but probably not until late 2007 at the earliest," said Samuel Gerdano, ABI’s executive director.
"The slightly upward trend seems to be continuing," Gerdano said. "But we’ll need to look at numbers over a longer period of time to properly characterize it."
The week before the new bankruptcy law took affect in October 2005, an onslaught of 500,000 consumers raced to file a daily average of 70,000 filings, according to ABI. The new rules imposed tougher filing restrictions designed to keep bankruptcy numbers low.
"That surge exhausted a lot of the demand for bankruptcy," said Lois R. Lupica, law professor at the University of Maine. "But the exhausted demand is expiring."