Bankruptcy Puzzler: Economy or Reform Behind 15% Jump?
Lee, W. A., American Banker
Even considering the recession and consumers' anxiety over the likely passage of the long-stalled bankruptcy reform bill, the bankruptcy numbers released Thursday were surprising.
The Administrative Office of the U.S. Courts reported that there were a record 1.5 million filings in the 12 months through March 31, 15.1% more than the year before. Personal bankruptcy filings accounted for 1.46 million of the total, up 15.2%. Business filings were up 10.7%, to almost 40,000.
"We expected it to be big, but this is a little bit bigger than what we expected," said David Wyss, chief economist at Standard and Poor's. "This quarter had a couple of special factors," namely anticipation of the bankruptcy bill, which would make it harder to eliminate debt, and post-Sept. 11 unemployment, he said. "I suspect many of those filings were in New York."
The main reason for the increase was the recession, said Keith Leggett, an economist at the American Bankers Association in Washington. "Last March we entered a recession. As we saw a rise in unemployment there was increased stress on businesses, a natural cause for bankruptcy filings to rise."
Bankruptcy is a lagging indicator, so filings will not decline for awhile even as the economy improves, Mr. Leggett said. Though gross domestic product went up 5.8% in the first quarter, unemployment, another lagging indicator linked to bankruptcy, rose to 6%. Bankruptcy filings track employment numbers more closely than they do economic output.
"It will be a while before the employment picture improves, so we should not find these (bankruptcy) numbers surprising," Mr. Leggett said.
Mr. Wyss said he does not expect unemployment to peak until June or July.
Edward J. …