Consumer Bankruptcy Filings Continue Decline But Ch. 11s on Rise

Bankruptcy filings fell 1.8 percent for the 12-month period ending March 31, compared with the same period ending in 2017, the latest figures from the Administrative Office of the U.S. Courts said April 26.

The datacontinues a national trend of declining bankruptcy filings since 2011, according to the AOUSC.

Annual bankruptcy filings totaled 779,828, compared with 794,492 cases in the previous year, the AOUSC said.

Rise in Chapter 11 Filings

“Although consumer filings continue to drop, that is likely more related to the strong job market than anything else,” Bruce A. Markell, a bankruptcy professor at Northwestern Pritzker School of Law, Chicago, told Bloomberg Law.

“When people have jobs, they tend not to file,” he said.

But what Markell found “potentially troubling” was the rise in Chapter 11 filings.

“As businesses provide the jobs that tend to temper consumer filings, a rise in business filings may portend trouble in the consumer sector,” he said.

“The recent rise to 3 percent in the federal benchmark treasury rate also will impact business’ ability to access credit, which is a factor as well in business bankruptcy filings,” Markell said.

Business v. Non-Business Filings

The majority of bankruptcy filings involve non-business debts. During the 12-month period ending March 31, 2018, non-business bankruptcy filings totaled 756,722, down from 770,901 in the previous year, the AOUSC said.

Business bankruptcy filings during the same 12-month period totaled 23,106, down from 23,591 in 2017.

Breakdown of Filings by Chapter

The number of bankruptcies filed by Bankruptcy Code chapter for the 12-month period ending March 31, 2018, are as follows:

• Chapter 7 filings totaled 480,933, down from 488,417 in 2017.
• Chapter 11 filings totaled 7,735, an increase from 7,105 in 2017.
• Chapter 12 filings totaled 499, an increase from 457 in 2017.
• Chapter 13 filings totaled 290,566, down from 298,348 in 2017.

In Chapter 7, a debtor’s nonexempt assets are liquidated by a trustee and the proceeds are distributed to creditors.

Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, they must propose a plan that uses future income to repay all or a portion of their debts over a three- to five-year period.

Chapter 11 protects companies or individuals from creditors while they seek to reorganize their debt or liquidate under a plan that must be approved by the bankruptcy court.

Chapter 12 is designed to protect family farmers and family fishermen.