August 08, 2006
Bankruptcy in the Wake of Katrina
posted by Rafael Pardo http://www.concurringopinions.com
I’ve recently been thinking about the difficulty researchers will face in studying Hurricane Katrina’s effects on bankruptcy filing rates in New Orleans. A couple of weeks ago, over at Credit Slips, Bob Lawless (University of Illinois) discussed the importance of extending credit relief to natural-disaster victims. Lawless’s empirical work on bankruptcy filing rates after a major hurricane has found “that for every two new bankruptcies that occur in areas unaffected by the hurricane, there are three new bankruptcies in the judicial district where the hurricane made landfall.” The study focused on hurricanes from 1980 – 2004, so I’m curious to see whether in the case of Katrina this finding will hold to be true for the Eastern District of Louisiana (E.D. La.), within which New Orleans is located. My hunch is that it won’t. Since the New Orleans diaspora involved hundreds of thousands of individuals, many of whom would be likely candidates for bankruptcy but have not returned (and may never return) to the city, the increased volume of bankruptcy filings will not materialize in E.D. La. A preliminary look at recent bankruptcy-filing data from the district suggests as much.
As an initial matter, there has recently been a national downward trend in bankruptcy filings. According to statistics from the Administrative Office of the U.S. Courts, bankruptcy filings for the second quarter of Fiscal Year 2006 (1/1/06-3/31/06) were down approximately 71% nationwide compared to the second quarter of FY 2005. This dramatic downturn has been attributed to the deluge of bankruptcy filings prior to October 17, 2005—the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which was intended to make it more difficult for certain consumer debtors to obtain bankruptcy relief. However, bankruptcy filings for E.D. La. had dropped approximately 86% for the same period of time—15% more than the nationwide figure. In terms of absolute numbers, there were only 340 total bankruptcy filings (60 business and 280 consumer) within the district.
It strikes me that these figures, in addition to being a product of strategic behavior by debtors in anticipation of BAPCA, also reflect the fact that the majority of individuals who have returned to New Orleans probably have had the financial means to stave off a bankruptcy filing. On the other hand, many of the New Orleans evacuees who remain away from the city have probably lost much (if not all) and either (1) have less of an incentive to return or (2) do not have the financial means to return. It’s these individuals whom researchers will have to track down—in places like Houston, Birmingham, Atlanta and Nashville—in order to understand fully the effects of Hurricane Katrina on financial distress. Moreover, any comprehensive study will have to analyze the impact of the diaspora on the communities where New Orleans residents relocated. The economies of these communities will simultaneously have experienced financial gain (e.g., influx of consumer dollars, workforce expansion) and financial strain (e.g., increased demands on public services such as health care and education). Considering the latter, it could very well be the case that financial distress leading to bankruptcy will be experienced by individuals in communities that were not directly in the path of Hurricane Katrina. If the numbers are large enough, the Katrina experience could force us to reconsider our prior understandings of a natural disaster’s impact on bankruptcy filing rates.
Posted by Rafael Pardo at August 8, 2006 02:42 AM
Monday, August 14, 2006
Some new data on bankruptcies
Bankruptcy Filings are on the Rise
After experiencing a sharp drop in the first quarter of 2006, the rate of bankruptcy filings has begun to rise. The lull in late 2005 and early 2006 is thought to be a result of tough new bankruptcy legislation. Given the recent uptick, however, it looks like the bankruptcy legislation did little more than temporarily stall the flow of new filings.
On average, 1 in 60.16 households nationwide filed for bankruptcy in 2005. Here’s a look at the states with the highest bankruptcy rates:
1. Indiana (1 in 34.41 households filed)
2. Ohio (1 in 37.79 households filed)
3. Utah (1 in 39.52 households filed)
4. Tennessee (1 in 39.7 households filed)
5. Oklahoma (1 in 40.86 households filed)
And here are the lowest rates:
51. South Carolina (1 in 123.16 households filed)
50. Alaska (1 in 122.64 households filed)
49. Vermont (1 in 119.61 households filed)
48. District of Columbia (1 in 115.93 households filed)
47. Hawaii (1 in 109.54 households filed)
To be honest, I was a bit surprised that the top five was completely devoid of states in which the housing market has gone nuts over the past few years. As mortgage rates continue to rise and more and more adjustable rate mortgages start floating that could change dramatically.
Staff article.
After experiencing a sharp drop in the first quarter of 2006, the rate of bankruptcy filings has begun to rise. The lull in late 2005 and early 2006 is thought to be a result of tough new bankruptcy legislation. Given the recent uptick, however, it looks like the bankruptcy legislation did little more than temporarily stall the flow of new filings.
On average, 1 in 60.16 households nationwide filed for bankruptcy in 2005. Here’s a look at the states with the highest bankruptcy rates:
1. Indiana (1 in 34.41 households filed)
2. Ohio (1 in 37.79 households filed)
3. Utah (1 in 39.52 households filed)
4. Tennessee (1 in 39.7 households filed)
5. Oklahoma (1 in 40.86 households filed)
And here are the lowest rates:
51. South Carolina (1 in 123.16 households filed)
50. Alaska (1 in 122.64 households filed)
49. Vermont (1 in 119.61 households filed)
48. District of Columbia (1 in 115.93 households filed)
47. Hawaii (1 in 109.54 households filed)
To be honest, I was a bit surprised that the top five was completely devoid of states in which the housing market has gone nuts over the past few years. As mortgage rates continue to rise and more and more adjustable rate mortgages start floating that could change dramatically.
Staff article.
Bankruptcy Statistics
Bankruptcy filings slow to trickle; lull not expected to last...
According to the U.S. Bankruptcy Court, District of Kansas, the number of bankruptcy filings between November 2005 and February 2006 dropped 82 percent from the same period a year ago: 785 compared to 4,336 between November 2004 and February 2005.
The number of filings began their steep fall after a new federal law went into effect last October.
But Zimmerman and other bankruptcy experts don't expect the trend to last. While the rules for filing bankruptcy have changed, the conditions that caused them haven't.
That's why Zimmerman, his peers and a bankruptcy court official say the pause in filings will be short lived.
"Everybody in the business believes that by the end of summer or early fall we'll be very close to historical numbers," says Zimmerman, a partner in the law firm of Case, Moses, Zimmerman & Wilson PA.
'Need IS still there' Despite the drop in filings, Zimmerman isn't hurting for business. Nor is Ed Nazar, a bankruptcy attorney and a bankruptcy court trustee.
A rush in filings last October -- before the new law took effect -- has carried them through.
"The truth is we never really did slow down that much," Zimmerman says. "Certainly I'm getting the calls. The need is still there."
Nazar agrees and predicts a similar second quarter or third quarter return to pre-October filing levels.
"There's no question the filings are creeping up," says Nazar, a partner at law firm Redmond & Nazar LLP. "In my mind it ought to be rising more than it is."
Fred Jamison, clerk for Kansas' bankruptcy court, says activity at the front end of bankruptcy court reflects fewer filings.
"But there's a whole lot of the activity that has moved from the counter to the courtroom," Jamison says. "Our judges are real busy."
Jamison says the October rush, in which Kansas bankruptcies topped 7,252, most in the first 10 days of the month, "cleared the pipe up."
All the new law did was create a rush by people to file Chapter 7 bankruptcy before it took effect on Oct. 17, 2005, Jamison says. Nearly 80 percent of bankruptcy filings in the state are for Chapter 7, a liquidation bankruptcy that involves appointing a trustee to sell all of a debtor's assets to pay creditors.
The new law is delaying people from filing Chapter 7, Jamison says, by requiring them to first try credit counseling to clear up their debt or to enter Chapter 13 bankruptcy. Chapter 13 means people pay off their debt by arranging payment plans with their creditors.
But Jamison says that nationally, only 1 percent of bankruptcy filers have entered into credit counseling and been referred to a Chapter 13 filing.
"I think it may have been a part of the belief in building the new law that there was a substantial number of people filing bankruptcy and didn't need to file bankruptcy," Jamison says. "At this point, that's not what's been coming across in the statistics nationwide. And we're consistent with what's going on nationwide."
Nazar and Zimmerman think news of the act scared some people into filing bankruptcy early -- and led them to believe that under the new act that it would be nearly impossible to file for bankruptcy.
That was due to the credit counseling requirement and the new caps on median income for individual filers: $61,515 for a family of four to $37,795 for individuals. Nazar says according to data provided to trustees by the U.S. Bankruptcy Court, more than three-quarters of Kansans have income that fall within those limits.
Zimmerman says the factors that bring people to bankruptcy haven't changed, either. Most filers get into uncontrollable debt because of medical bills, layoffs and divorces, he says. It's not all from racking up debt on credit cards.
"There isn't anything in the bankruptcy code that changes that," Zimmerman says. "My sense is the filings are coming back up because the need is still there."
According to the U.S. Bankruptcy Court, District of Kansas, the number of bankruptcy filings between November 2005 and February 2006 dropped 82 percent from the same period a year ago: 785 compared to 4,336 between November 2004 and February 2005.
The number of filings began their steep fall after a new federal law went into effect last October.
But Zimmerman and other bankruptcy experts don't expect the trend to last. While the rules for filing bankruptcy have changed, the conditions that caused them haven't.
That's why Zimmerman, his peers and a bankruptcy court official say the pause in filings will be short lived.
"Everybody in the business believes that by the end of summer or early fall we'll be very close to historical numbers," says Zimmerman, a partner in the law firm of Case, Moses, Zimmerman & Wilson PA.
'Need IS still there' Despite the drop in filings, Zimmerman isn't hurting for business. Nor is Ed Nazar, a bankruptcy attorney and a bankruptcy court trustee.
A rush in filings last October -- before the new law took effect -- has carried them through.
"The truth is we never really did slow down that much," Zimmerman says. "Certainly I'm getting the calls. The need is still there."
Nazar agrees and predicts a similar second quarter or third quarter return to pre-October filing levels.
"There's no question the filings are creeping up," says Nazar, a partner at law firm Redmond & Nazar LLP. "In my mind it ought to be rising more than it is."
Fred Jamison, clerk for Kansas' bankruptcy court, says activity at the front end of bankruptcy court reflects fewer filings.
"But there's a whole lot of the activity that has moved from the counter to the courtroom," Jamison says. "Our judges are real busy."
Jamison says the October rush, in which Kansas bankruptcies topped 7,252, most in the first 10 days of the month, "cleared the pipe up."
All the new law did was create a rush by people to file Chapter 7 bankruptcy before it took effect on Oct. 17, 2005, Jamison says. Nearly 80 percent of bankruptcy filings in the state are for Chapter 7, a liquidation bankruptcy that involves appointing a trustee to sell all of a debtor's assets to pay creditors.
The new law is delaying people from filing Chapter 7, Jamison says, by requiring them to first try credit counseling to clear up their debt or to enter Chapter 13 bankruptcy. Chapter 13 means people pay off their debt by arranging payment plans with their creditors.
But Jamison says that nationally, only 1 percent of bankruptcy filers have entered into credit counseling and been referred to a Chapter 13 filing.
"I think it may have been a part of the belief in building the new law that there was a substantial number of people filing bankruptcy and didn't need to file bankruptcy," Jamison says. "At this point, that's not what's been coming across in the statistics nationwide. And we're consistent with what's going on nationwide."
Nazar and Zimmerman think news of the act scared some people into filing bankruptcy early -- and led them to believe that under the new act that it would be nearly impossible to file for bankruptcy.
That was due to the credit counseling requirement and the new caps on median income for individual filers: $61,515 for a family of four to $37,795 for individuals. Nazar says according to data provided to trustees by the U.S. Bankruptcy Court, more than three-quarters of Kansans have income that fall within those limits.
Zimmerman says the factors that bring people to bankruptcy haven't changed, either. Most filers get into uncontrollable debt because of medical bills, layoffs and divorces, he says. It's not all from racking up debt on credit cards.
"There isn't anything in the bankruptcy code that changes that," Zimmerman says. "My sense is the filings are coming back up because the need is still there."
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