Bankruptcies up 32% in 2009

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.