During 2016, about 795,000 bankruptcy cases were filed nationwide.1 This was a 6% decline from filings in 2015 and a 50% decline from the most recent peak in 2010.
Filing Trends by Chapter and State
The 6% decline in 2016 was the smallest annual change in filings since 2004. Chapter 7 cases were responsible for most of the decline as Chapter 13 filings were down only slightly in 2016 and Chapter 11 filings actually increased.
During the first nine months of 2016, total filings and Chapter 7 increased in 10 states and Puerto Rico compared to the same period in 2015. About 50% of states reported increases in Chapter 11 and Chapter 13 cases. Comparable maps for filings from 2011 to 2015 would have nearly every state registering a decrease of all filing types each year.
Bankruptcy filing levels tend to be somewhat volatile from year-to-year. Because most cases are filed by households with too much consumer debt, filing levels roughly track trends in consumer spending.2 Since 1990, the average annual change in filings (either up or down) at the state level has been 14.5%. However, 2016 has been an exception, in that the change in filings from 2015 was under 5% in about half of the states and only a handful of states had changes of more than 10% during the year.
Long Term Filing Trends by State
Last year marked the sixth consecutive year of declines in bankruptcy filings. This is the longest period on record of declining bankruptcy filings.3 Since their most recent peak in 2010, filings are down by 50% nationwide. Generally, bankruptcy filings have declined less in most Southeastern states where Chapter 13 is most popular. The declines have been most dramatic in states in the Northeast and the Southwest.
If we set 1990 as the baseline year, a somewhat different picture emerges. National filings in 2016 were quite close to the same as in 1990. However, since that time there has been substantial geographic variation in filing trends. In general, filings have increased in most Eastern states, with the exception of the New England region, and have decreased in most Western states.
Chapter 11 Cases
Filings of Chapter 11 cases increased very slightly in 2016 for the second consecutive year. However, even with these increases, Chapter 11 filings are now only about half as high as their most recent annual peak in 2009.
Most Chapter 11 filings involve relatively small entities. Although the total number of Chapter 11 filings have been fairly flat since 2014, there has been a marked increase in the number of very large Chapter 11 cases.4 In the first 11 months of 2016, there were 22 Chapter 11 filings by publicly held companies with more than $1 billion in pre-petition assets. This was the largest volume of such cases since 2009, but well below the number filed during the two most recent recessions.
Large Case Filings by Sector
Most of the very large cases filed in 2016 involved companies in the energy sector, including 13 oil and gas companies, two coal companies and one renewable energy company. In the early 2000s, the largest filings tended to be by companies in the healthcare, retail and telecommunications industries. Banking, finance and automotive cases were highest during and after the Great Recession.
Chapter 11 Commission
The last major overhaul of Chapter 11 occurred in 1978. There is an emerging consensus that Chapter 11 needs an updated toolkit to deal with new types of lending and increasingly complex debt and capital structures. The ABI Commission to Study the Reform of Chapter 11 issued its Final Report and Recommendations in December 2014.5 The 400-page report made more than 200 discrete proposals to modernize the law. A number of courts have cited the report, and Congress is expected to consider the proposals on small- and medium-sized enterprises during 2017.
The Supreme Court is asked to review between 7,000 and 8,000 cases each year, but generally only accepts about 80 cases. The October 2016 term featured two bankruptcy cases that were accepted for argument. While these cases present important legal issues, their outcomes are not likely to have much impact on future filing levels.
In re Jevic Holding Corp (3rd Circuit): The court will decide whether bankruptcy courts can utilize so-called structured dismissals where the case is dismissed and property is distributed in a settlement that violates the priorities contained in 11 U.S.C. §507.
Midland Funding v. Johnson (11th Circuit): The two issues to be decided include: 1) whether the filing of an accurate proof of claim for an unextinguished time-barred debt in a bankruptcy proceeding violates the FDCPA, and 2) whether the Bankruptcy Code precludes the application of the FDCPA to the filing of an accurate proof of claim for an unextinguished time-barred debt.
Outlook for 2017
Barring unforeseen developments, 2017 is shaping up to be a quiet year in the world of bankruptcy.
- While not soaring, the overall U.S. economy is doing fairly well. After a period of stagnation, incomes are rising and the national unemployment rate is under 5%. Interest rates remain low. Mortgage delinquencies and foreclosures continue to drop. Delinquent credit card debt is down slightly over the last year, though delinquent auto debt is up.
- Student loan outstanding balances and delinquencies continue to increase, but this debt is rarely dischargeable in bankruptcy.
- We do not expect to see a detectable change in bankruptcy activity in 2017 because of the 2016 elections.
- With all of the issues facing the incoming Donald Trump administration, changes to the bankruptcy laws appear to be a low priority. Therefore, we do not foresee any major legislative changes directly affecting bankruptcy in 2017.
- Our projection is that total filings nationwide may increase very slightly in 2017 after six years of decline. Filings of Chapter 13 cases will increase slightly. Chapter 7 filings will be flat. No area of the country will see particularly high increases or decreases in filings during the year. Chapter 11 filings by relatively large companies are likely to remain high for a non-recession year, particularly those in the energy and retail sectors.
- Final figures for 2016 were not available when this article was submitted but, based on final figures for January through September and preliminary data for October and November, we can make fairly precise estimates of the total activity for 2016.
- For example, see: Bob Lawless, “Bankruptcy Filings Will Be the Lowest Since 1995 — Here Is a Reason Why,” Credit Slips, Aug. 6, 2014, available at: http://www.creditslips.org/creditslips/2014/08/bankruptcy-filings-will-be-the-lowest-since-1995-here-is-a-reason-why.html
- The two prior prolonged periods of falling bankruptcy filings each lasted five years. The first occurred from 1915 to 1920, and the second was from 1941 to 1946, coinciding with World Wars I and II.
- In recent decades, a majority of the largest Chapter 11 filings have been made in either the District of Delaware or the Southern District of New York.
- See http://commission.abi.org/