Bankruptcies up 32% in 2009

posted at 12:55 pm on January 5, 2010 by Ed Morrissey

If the economy improved in 2009, it didn’t show in the bottom line of bankruptcies in the US.  The number of bankruptcy filings jumped almost a third over 2008, when the financial system nearly collapsed and housing values plummeted.  It only slowed down slightly as the year wore on:

U.S. consumers and businesses are filing for bankruptcy at a pace that made 2009 the seventh-worst year on record, with more than 1.4 million petitions submitted, an Associated Press tally showed Monday.

The AP gathered data from the nation’s 90 bankruptcy districts and found 1.43 million filings, an increase of 32 percent from 2008. There were 116,000 recorded bankruptcies in December, up 22 percent from the same month a year before.

While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws, the numbers indicate clear correlations to recession-weary regions. Arizona saw the fastest increase, a jump of 77 percent from the year before, followed by Wyoming (60 percent), Nevada (59 percent) and California (58 percent).

But it’s getting better now, right?  After all, we keep hearing that the economy is improving, and that businesses are finding their footing.  Prosperity is just around the corner!  Or … not:

There’s also no sign that things are slowing down. Harmon said bankruptcies have been coming in waves, first with those 18 months ago who had adjustable-rate mortages, then with those who lost their jobs due to the housing downturn. Now he’s finding wealthy individuals and business owners who have finally succumbed to lower incomes and shrinking home values.

The AP reviews the effects of the bankruptcy reform passed a few years ago, and while the AP doesn’t appear to give it much credit, it does seem to have accomplished its goals.  The reform created a raft of red tape and some potential new liabilities for bankruptcy attorneys as it tried to take some of the incentives out of the bankruptcy industry.  The numbers argue that it had a significant impact for a couple of years, which makes the upturn in bankruptcies now even more significant.

Filings were highest in states hardest hit by the recession and housing collapse, but as this shows, it’s a widespread phenomenon:

While every state saw a rise in bankruptcies, Alaska (up 12 percent), Nebraska (12 percent) and North Dakota (14 percent) performed best.

Every state had a double-digit increase in bankruptcies, even with the more restrictive controls.  That is a depressing statistic, and one that forebodes a very slow recovery at best in 2010.

Scott Grannis sees some hope in the manufacturing report this week for a return to growth, however:

The ISM manufacturing survey released today again reinforces the fact that significant portions of the U.S. economy are experiencing a V-shaped recovery. As this chart suggests, we are likely to see real GDP growth of 4% or possibly even more in this first quarter of the new year. I’ll stick with my projection of 3-4% real growth on balance for the year. This is undeniably excellent news for the economy.

But as Grannis explains to one of his commenters, this comes in spite of the administration’s economic policies, not as a result of them:

I continue to believe, as I have for over a year now, that this recovery has nothing to do with Keynesian “stimulus.” Indeed, I think the stimulus plan has actually hindered the economy’s progress by expanding the influence of government, promoting wasteful spending, and raising the prospects of a significant increase in future tax burdens. …

This recovery is largely the result of the economy’s innate ability to adjust to adversity and the market’s ability to translate hard work into profits and progress.

Exactly.  But keep an eye on bankruptcies, too.  If they continue to increase, they can have a domino effect, with a dampening effect on capital investment and growth.


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While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws

Check me if I am wrong, but didn’t the law change in 2005? How the heck is that recent? Oh and what the heck is a natural recovery in regards to the change in law?

Johnnyreb on January 5, 2010 at 12:59 PM

Happy days are here again!!

I also have a bridge for sale in NYC.

jukin on January 5, 2010 at 12:59 PM

They never mentioned if it was a Chapter 7 or 13. If it was individual/personal or business.

Interesting.

upinak on January 5, 2010 at 1:00 PM

Re: Business Filings

Remember that most small businesses that fail do not file bankruptcy cases and, even those that do, are having a very hard time finding the debtor in possession (DIP) financing needed to run their companies during bankruptcy….When you can’t get financing, you generally are less likely to file (or if you do file, it’s a liquidation bankruptcy rather than a reorganizing one).

Outlander on January 5, 2010 at 1:01 PM

I am surprised to see Arizona having the highest rate of bankruptcies (77%) in spite of it being a solid red state. Texas, on the other hand, has been very well sheltered from this (the oil industry had a role to play, for sure).

peter_griffin on January 5, 2010 at 1:02 PM

It’s only going to worse Ed now that Barry has messed around with the credit card companies that was supposed to make things better, but really screwed us even more.

How’s that working out for everyone?

Knucklehead on January 5, 2010 at 1:03 PM

peter_griffin on January 5, 2010 at 1:02 PM

How about the fact that many people in AZ are retirees and the stock market wasn’t so good this year and many of them lived on their stock interest?

upinak on January 5, 2010 at 1:04 PM

I am surprised to see Arizona having the highest rate of bankruptcies (77%) in spite of it being a solid red state.
peter_griffin on January 5, 2010 at 1:02 PM

Two contributing factors:
1) Lots of real estate speculation in Arizona, leading to a lot of heavy losses; and
2) High percentage of retirees, who typically have a lot of assets that are shielded from creditors claims, so they have less to lose by filing.

Outlander on January 5, 2010 at 1:06 PM

Unemployment was 7.6% in January 2009 and it wasn’t supposed to go above 8.0% due to the super-awesome stimulus plan.

Pretty sure the economy got worse in 2009 no matter how you slice it.

The only thing to do is try to make going into the toilet at a slightly slower rate sound like an improvement.

forest on January 5, 2010 at 1:08 PM

Check me if I am wrong, but didn’t the law change in 2005? How the heck is that recent? Oh and what the heck is a natural recovery in regards to the change in law?
Johnnyreb on January 5, 2010 at 12:59 PM

The last major overhaul was 1978, and the courts properly consider Congress as passing law to correct court rulings…so many issues are being reconsidered by the federal courts, apart from procedural changes. The challenges are still ongoing.

There were bound to be people waiting to file until they knew whether they could keep the house, or the trust fund. So the number of filings dipped, and is now ‘recovering’. I doubt that’s in the tens of thousands, though.

Chris_Balsz on January 5, 2010 at 1:09 PM

It will get worse, that is the problem. Obama, and this administration is doing nothing to really help the small business…they even excluded the two most influential and largest advocates of small business from their jobs forums.
They have no idea how important small businesses are to America…or how important any business is too us.
These “wealthy” owners are the ones who buy the cars, boats, vacation homes…they buy insurance, invest, and save…the saving money is what others borrow to purchase and expand…they just don’t understand basic economics.

right2bright on January 5, 2010 at 1:09 PM

Well good, that just goes to show ya we should definitely re-elect two guys, Juan (I suspend my campaign to reach across the isle and screw the taxpayer) McCain in Arizona,
and On the Natioonnalll Levelevel, as dead Ted would say, Pinnochio!

dhunter on January 5, 2010 at 1:09 PM

Chris_Balsz on January 5, 2010 at 1:09 PM

Actually it was change in 2005 and then revised.. Dec. 1st, 2009. The reason for the spike at the end of the year was due to the revision.

http://www.law.cornell.edu/rules/frbp/

http://www.uscourts.gov/rules/bkrules.html

upinak on January 5, 2010 at 1:11 PM

Obviously the system is working.

JohnTant on January 5, 2010 at 1:12 PM

B+

Good Lt on January 5, 2010 at 1:13 PM

Hey this is jobs saved or created. These law firms are booming.
Seriously, I have a cousin who worked in this field, the stories are funny even though the subject is not. People file for bankruptcy and think they can still spend, they also file and fail to report assets.
I think the fantasy world of many many people is crumbling.

ORconservative on January 5, 2010 at 1:15 PM

So many small businesses…obviously, NOT too big to fail. :(

ihasurnominashun on January 5, 2010 at 1:17 PM

But it’s getting better now, right? After all, we keep hearing that the economy is improving, and that businesses are finding their footing. Prosperity is just around the corner!

Whenever I hear the adminstration make claims of how much they’ve improved the economy, I think of the family of a terminally ill patient pinning all their hopes on the next set of test results or the fact that the patient looked a little better.

The reality is that the economy will not improve until business has faith that they aren’t going to be plowed under by the government. This administration has done little to foster such faith.

highhopes on January 5, 2010 at 1:18 PM

It is clear to me that there is no real recovery here. I will ride the stocks till they fall again and sell fast.

sonofdy on January 5, 2010 at 1:18 PM

Yep, bankruptcies are up, job satisfaction is down, the country is as depressed as she can be.

This is some kind of Change. America, what were you thinking, or hoping for?

Schadenfreude on January 5, 2010 at 1:21 PM

Lemme get this right. All states had a double-digit increase in bankruptcies (thats 2 numbers, drywall) over the last year with an overall increase by 32% over ’08? However, at the same time atmospheric carbon DID NOT increase and the mean temperature also DID NOT increase….
Quick, pass cap and trade! this increase must be due to the lack of green jobs and leaky windows!

ted c on January 5, 2010 at 1:22 PM

Has there been any change in the average size of the bankruptcy filings?

MarkTheGreat on January 5, 2010 at 1:23 PM

upinak on January 5, 2010 at 1:04 PM

And all these retirees were living in homes which were not already fully paid for? I know areas in Texas which are very retiree based (like certain outskirts of Houston), but those neighborhoods were not in any way impacted by the housing bust, because most folks had already paid for their homes way before they had retired. I am just trying to figure out the difference here.

peter_griffin on January 5, 2010 at 1:23 PM

System worked.

The more bankruptcies the more people dependent on the government (Obama and his stash).

TXUS on January 5, 2010 at 1:24 PM

Marxism: “I won”

faraway on January 5, 2010 at 1:25 PM

Chris_Balsz on January 5, 2010 at 1:09 PM

WSJ:

And more people are filing for Chapter 7 bankruptcy, which liquidates assets to pay off some debts and absolves the filers of others. That is significant because a 2005 overhaul of federal bankruptcy laws aimed to encourage Chapter 13 filings, which force consumers to sign onto debt-repayment plans in exchange for keeping certain assets.

The changes were designed to make it more difficult for people to shed their debt, particularly in a Chapter 7 filling. A “means” test, for example, was introduced to separate those who could afford to repay their debt from those who couldn’t. A Chapter 7 filing is off the table if the means test determines a person is able to pay back at least a portion of the debt after it is restructured.

Wethal on January 5, 2010 at 1:25 PM

Outlander on January 5, 2010 at 1:06 PM

Yes, I have to agree speculation did play an important role here. I am surprised how some of the most conservative bankers in AZ fell prey to it (while their Texan brethren did not).

peter_griffin on January 5, 2010 at 1:25 PM

Must be for the lack of health care coverage…/

d1carter on January 5, 2010 at 1:31 PM

Pending home sales plummet…experts surprised. But the AP insists there is good news!

But there appeared little risk a potential double-dip in housing would pull the economy back into recession. Orders to U.S. factories posted a big gain in November, the Commerce Department said Tuesday. That data was the latest evidence of a strong turnaround in manufacturing as industries from China to Europe flash recovery signs.

Taken together, the reports show that, while housing remains vulnerable, makers of steel, computers and chemicals are mounting a surprisingly robust rebound.

Heh

SouthernGent on January 5, 2010 at 1:36 PM

Looks like it is time for small business owners to quit being so greedy and start hiring more employees.

jukin on January 5, 2010 at 1:38 PM

Looks like it is time for small business owners to quit being so greedy and start hiring more employees.

jukin on January 5, 2010 at 1:38 PM

Small businesses are hurting right now, very badly.

How about BIG businesses tried not outsourcing thousands of jobs? But oh no, can’t do that…

Dark-Star on January 5, 2010 at 1:42 PM

Once America gets used working for $1.00 a day,
our economy is going to kick ass.
Decades of bad legislation and bad politicians has crippled this countries
real potential.

elderberry on January 5, 2010 at 1:54 PM

How about BIG businesses tried not outsourcing thousands of jobs? But oh no, can’t do that…

Dark-Star on January 5, 2010 at 1:42 PM

Why do you believe that govt has the right to tell a business who it can and can’t hire?

MarkTheGreat on January 5, 2010 at 1:56 PM

Not surprised! Fannie Mae and Freddie Mac have a fresh pot of money to continue buying homebuyers mortgages in the secondary market. Many families can’t afford the home they just purchased, so we can expect bankruptcies to increase in 2010.

yoda on January 5, 2010 at 1:57 PM

How’s that working out for everyone?

Knucklehead on January 5, 2010 at 1:03 PM

A friend of mine with an excellent credit rating and a small (<1,000) amount of outstanding credit card debt recently told me that he received letters from three of his credit card companies. The letters stated that they were cutting his credit limit by more than half and changing his interest rate to the maximum allowed by law.

Have not personally seen this yet, but figure it is only a matter of time.

rukiddingme on January 5, 2010 at 2:05 PM

Why do you believe that govt has the right to tell a business who it can and can’t hire?

MarkTheGreat on January 5, 2010 at 1:56 PM

Funny, I don’t hear that argument being voiced about illegal immigrants.

Unless you’re arguing that the telling a business whom it cannot hire (which the gov’t has a limited right to do) is different from telling a business whom it must hire. I suppose that would have a point, much like the argument against healthcare mandate.

Dark-Star on January 5, 2010 at 2:06 PM

Dark-Star on January 5, 2010 at 2:06 PM

OK 3 martinis at lunch is enough for you.

angryed on January 5, 2010 at 2:28 PM

OK 3 martinis at lunch is enough for you.

angryed on January 5, 2010 at 2:28 PM

Don’t drink. Not only can I not afford to (physically and financially) but there’s a phrase in the Bible about not making your brother in Christ stumble that applies to me right now.

Dark-Star on January 5, 2010 at 2:44 PM

Funny, I don’t hear that argument being voiced about illegal immigrants.

Dark-Star on January 5, 2010 at 2:06 PM

Different kettle of fish. Illegals are by definition, illegal.

An argument can be made that it is not the responsibility of individual companies to figure out which employees are legal and which aren’t. Just like it is not the responsibility of companies to determine that all of their employees are paying their taxes in full each year. Companies are not deputized to enforce the law, nor should they be.

Beyond that, would you care to actually answer the question?

MarkTheGreat on January 5, 2010 at 2:51 PM

Beyond that, would you care to actually answer the question with an answer I don’t dismiss out of hand?

MarkTheGreat on January 5, 2010 at 2:51 PM

How about this:

There are requirements for licenses an individual must have before being hired for a many jobs, such as a heavy equipment operator or a surgeon. The government says – for good reason – that businesses cannot simply hire any Joe Schmoe to do certain jobs, largely because unqualified people in the wrong places would put many lives in danger.

Dark-Star on January 5, 2010 at 3:01 PM

Dark-Star on January 5, 2010 at 3:01 PM

Once again, none of the states responsibility. If you want to patronize a company that hires non-licensed individuals, that should be your right. As long as the company does not commit fraud by telling customers that it’s workers are licensed, when they are not.

By your logic, the state has the right to tell employers what the racial and sexual mix of it’s employees must be.

Of course our current abortion of a govt does this, but they have no right to do so, just the power to do so.

I’m asking you to defend your claim that the govt has the right to enforce such hiring. Pointing out that the govt already does so is a cop out, not an argument.

MarkTheGreat on January 5, 2010 at 3:07 PM

MarkTheGreat on January 5, 2010 at 3:07 PM

If the thought of untrained individuals operating far beyond their abilities in the fields of medicine or industry isn’t enough to rattle you, I simply don’t know what I can possibly say to change your mind. Or, for that matter, to even elicit a response that doesn’t amount to “duhhhhh…..so what?”

You are obviously a True Believer in this matter, and it’s clear to me that nothing short of a disaster occurring to you or your loved ones is going to budge your mulish “so what” attitude and blind dedication to the free market.

I can address this foolishness, however:

By your logic, the state has the right to tell employers what the racial and sexual mix of it’s employees must be.

With the way you jump to conclusions, you ought to enter in the Olympics.

No amount of training can change an individual’s sex or race. Period. What can be changed is how much someone knows on a certain subject and how much experience he or she has at a particular task. THAT is the goal of licensing: to make it clear to all that the person in question is qualified to do the job.

Dark-Star on January 5, 2010 at 3:17 PM

Son of a biscuit, this mouse has been double-clicking on a single click for a week now. That does it…time for a replacement from the garage.

Dark-Star on January 5, 2010 at 3:18 PM

If the thought of untrained individuals operating far beyond their abilities in the fields of medicine or industry isn’t enough to rattle you, I simply don’t know what I can possibly say to change your mind.

Did you even bother to read what wrote, or are strawmen the only people who keep you company these days. I never said that customers should patronize companies who hire incompetant people, I said that govt is not the proper agency for determining who is and who isn’t competant.

You honestly believe that if the state certifies someone as competant, then by definition they are competant?

You are obviously a True Believer in this matter, and it’s clear to me that nothing short of a disaster occurring to you or your loved ones is going to budge your mulish “so what” attitude and blind dedication to the free market.

I believe that people are smart enough to make choices for themselves.
You believe that only govt is capable of making the important decisions.

Who here is the true believer?

By your logic, the state has the right to tell employers what the racial and sexual mix of it’s employees must be.

With the way you jump to conclusions, you ought to enter in the Olympics.
Dark-Star on January 5, 2010 at 3:17 PM

You are the one claiming that the state has the power to decide who a company may hire. You have indicated that there is no limit to this authority.

No leaping, just following your illogic to it’s ultimate conclusion.

MarkTheGreat on January 5, 2010 at 3:34 PM

Pay close attention to the economic news. “Good” news is almost always month to month:

“Factory orders rose 1.6% in November” versus October. Ok, but if October sucked, big whoop!

“Bad” news is year to year:

“Bankruptcies up 32% compared to 2008.”

Looking at where we stand versus peak, or versus average, we’re still in deep. If GDP does show growth in quarter one it will still be largely influenced the by trickle of stimulus and the home buyers credits. How much of factory orders being up in November was the usual Christmas increase to meet Christmas buying? Notice they didn’t compare November factory orders to November 2008 . . .

No collapse in any sector will be a straight line, and for these so called economists to keep trumpeting “bumps” in the curve is rediculous. There is still so much weakness in so many sectors the next few drops are soon.

PastorJon on January 5, 2010 at 4:24 PM

“Unexpected”?

Read also that manufacturing was up…a little.

What I can’t figure out is…why?

Who’s buying?

Dr. ZhivBlago on January 5, 2010 at 5:10 PM

Just another ‘Green Shoot’ for Obamanomics!

GarandFan on January 5, 2010 at 5:23 PM

I’m a bankruptcy attorney. I have never had such a busy December for bankruptcies in 20 years of practice. I was in court today and everyone was saying they never remember being so busy this time of year.

Ted Torgerson on January 5, 2010 at 5:29 PM

We have a bankruptcy attorney here in the Midwest named Peter Francis Geraci who is doing absolutely booming business at all his offices located throughout Illinois, Indiana, Wisconsin AND Michigan!

Ask any of his clients how they are enjoying all that Hope and Change!

pilamaye on January 5, 2010 at 7:12 PM

My business-steel import sales, hit the toliet last year. I had to close 4 small businesses. I took a major hit on all of them. The first real money I have made in over a year actually came in late Nov. It is now picking up in the manufacturing side, but sadly mostly on the import side of steel and not in the USA manufacturing.

di butler on January 5, 2010 at 7:19 PM

How about BIG businesses tried not outsourcing thousands of jobs? But oh no, can’t do that…

Dark-Star on January 5, 2010 at 1:42 PM

Big business is in the same mess as small business, with one major exception. Big business can AFFORD to outsource when the govt tries to regulate them out of existence.

Your class warfare rhetoric is tired and ill-informed at best. Your precious govt created the problem, and now you want the same govt to ride in and fix it.

And trying to equate illegal immigration with a free market is as intellectually dishonest as I’ve seen you on these threads, and that’s really saying something.

runawayyyy on January 6, 2010 at 11:00 AM

WSJ:

And more people are filing for Chapter 7 bankruptcy, which liquidates assets to pay off some debts and absolves the filers of others. That is significant because a 2005 overhaul of federal bankruptcy laws aimed to encourage Chapter 13 filings, which force consumers to sign onto debt-repayment plans in exchange for keeping certain assets.

The changes were designed to make it more difficult for people to shed their debt, particularly in a Chapter 7 filling. A “means” test, for example, was introduced to separate those who could afford to repay their debt from those who couldn’t. A Chapter 7 filing is off the table if the means test determines a person is able to pay back at least a portion of the debt after it is restructured.
Wethal on January 5, 2010 at 1:25 PM

Speaking politically as to the effect of a law, because I’m just a paralegal…if you have questions about your life, ask a lawyer:

There’s three hurdles in that test. The first is, does your calculated annual income exceed the median income of households your size in your county? If it’s lower, you passed the test, skip the last two.

The folks who seem to be held back from filing are upper middle families who make more than the median income but run afoul of the $330,000 cap on unsecured debt in a Chapter 13. Their taxes, student loans, medical and credit card debt, deficiencies on repo’d cars, stripped second mortgages exceeds $330,000 but they earn too much for a 7. I guess Congress figured they’d just slog on and pay off their debts, but what seems to happen is one spouse quits their job and they surrender the house and then file a 7 (not on counsel’s advice)

Also waiting to file, people who get huge annual bonuses or only work 9 months out of the year, because you MUST use the last six calendar months to figure average monthly income. Using six months of without a bonus or with no work for 3 months may pay off.

Chris_Balsz on January 6, 2010 at 2:17 PM