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National Bankruptcy Research Center August 2010 Bankruptcy Filings Report

After holding steady in July, bankruptcy filings resumed their downward trend in August, falling by about 10,000 to less than 130,000. Because filings in July and August typically are about the same, this represents a seasonally adjusted decline of about 7%. Still, the level of filings this year remains much higher than it was last year: filings for August were 6% higher than for last July, and filings for 2010 to date are still about 12% higher than during the first eight months of last year.

Nationwide, filings this year to date amount to about 9122 filings per million households – about 1 in every 110 households. The highest filing rates are concentrated in the Southwest and the Southeast. Thus, on a household-adjusted basis, Nevada has substantially more than twice the national filing rate (20,000 filings per million households this year). Georgia, California, and Utah follow with about 50% more than the national average (about 14,000 filings per million households this year). Six states had rates less than half the national average: Alaska, the District of Columbia, South Carolina, North Dakota, South Dakota, and Texas.

The variation at the county level is particularly provocative, because the counties with the highest filing rates (adjusting for households located in the county) are concentrated in two part of the country. Although the highest county in the country this month is Shelby County, Tennessee (Memphis), four of the next nine are suburbs of Atlanta, and four are in Eastern California (Riverside, San Bernardino, Madera, and San Joaquin).

The data also reflect the continued prevalence of Chapter 7 (liquidation) filings; only 25% of the July filings sought relief under Chapter 13 (rehabilitation). The continuing decline in the share of Chapter 13 filings contrasts with the strong push by Congress in its 2005 bankruptcy legislation to encourage bankrupts to choose Chapter 13 rather than Chapter 7. As is typical, there was a substantial variation among the States in the prevalence of bankrupts seeking Chapter 13 relief. The States with the highest share of Chapter 13 filings remain concentrated in the Gulf Coast. Thus, two thirds of filings this year in Louisiana have been under Chapter 13 and more than half of filings in Alabama and Texas. At the other end of the spectrum were States with relatively low Chapter 13 shares; Iowa, New Mexico, South Dakota, West Virginia, and Connecticut all had less than 10% of their filings under Chapter 13.

Another accelerating trend in the data is the sharp disparity in changes since last year. Where a few states (all in the South) already have begun to see rates fall after the recession, some states continue to experience sharp increases, even by comparison to the elevated filing rates of 2009. Thus, filings in southern states like Tennessee, South Carolina, West Virginia, Alabama, and Mississippi have fallen since last year. On the other hand filings in Hawaii, Arizona, and California have risen by more than 30%.

This analysis was performed on data collected by the National Bankruptcy Research Center (NBKRC) by NBKRC contributor Professor Ronald Mann of the Columbia Law School.