Leiden University in the Netherlands has established an impressive strength in insolvency law studies. For example, following his retirement, the eminent Bob Wessels left his massive collection of literature on the subject to a foundation, which permanently lent the collection to the school as the Bob Wessels Insolvency Law Collection. Credit Slips readers can support the efforts of Leiden researchers without parting with their libraries by simply responding to a 15-minute online questionnaire. Niek Strohmaier is a Ph.D. candidate at Leiden conducting a study on judgment and decision making within the areas of business rescue and insolvency law. As he puts it, "We offer a novel perspective on these fields by utilizing the interdisciplinary nature of our research team and by adopting a social sciences approach with empirical research methods." If there's one thing that Credit Slips can rally around, it's empirical research! So I'm hoping we can show Niek our community spirit by responding to his survey at this link (http://leidenuniv.eu.qualtrics.com/jfe/form/SV_51GewBINfBAyfzv). The survey has received a good response from the professional membership of INSOL Europe, but I hope we can supercharge this qualitative data collection with responses from North America and elsewhere, as well. Thanks for your help!
Category: Bankruptcy Data
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People’s Pre-Bankruptcy Struggles — New Paper from the Consumer Bankruptcy Project
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The current Consumer Bankruptcy Project (CBP)’s co-investigators (myself, Slipster Bob Lawless, and past Slipsters Katie Porter & Debb Thorne) just posted to SSRN our new article (forthcoming in Notre Dame Law Review), Life in the Sweatbox. “Sweatbox” refers to the financial sweatbox—the time before people file bankruptcy, which is when they often are on the brink of defaulting on their debts and lenders can charge high interest and fees. In the article, we focus on debtors’ descriptions of their time in the sweatbox.
Based on CBP data, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. Two-thirds of people who file bankruptcy reported struggling with their debts for two or more years before filing. One-third of people reported struggling for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing—the “long strugglers”—we find that their time in the sweatbox is marked by persistent debt collection calls, the loss of homes and other property, and going without healthcare, food, and utilities. And although long strugglers do not file bankruptcy until long after the benefits outweigh the costs, they still report being ashamed of needing to file.
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Other (Non-Religious) Non-Profit Organizations Also File Bankruptcy
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Yesterday I posted about the number of religious organizations that filed chapter 11 between 2006 and 2017, and how their filings track fluctuations in consumer bankruptcy filings during those years. Non-religious non-profit organizations also file chapter 11, but in fewer numbers than religious organizations. As shown in this graph, between 2006 and 2017, a mean of 44 other non-profits filed chapter 11 per year (note: I count jointly-administered cases as one case).
In comparison, a mean of 79 religious organizations filed chapter 11 per year between 2006 and 2017. Over these twelve years, 36% of all chapter 11 cases filed by non-profit organizations were filed by non-religious non-profits.
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Churches Are Still Filing Bankruptcy
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Not only are religious organizations still filing under chapter 11. As in prior years, they continue to file under chapter 11 in line with fluctuations in consumer bankruptcy filings. Find a couple graphs below to show this. But first, some background.
In my prior work, I analyzed all the chapter 11 cases filed by religious organizations from the beginning of 2006 through the end of 2013. (I define any organization with operations primarily motivated by faith-based principles as religious.) I found that these chapter 11 cases were filed predominately by small, non-denominational Christian churches, which mainly were black churches (80% of more of their members are black). And, also, that the timing of the filings tracked consumer bankruptcy cases (chapters 7, 11, and 13), not business bankruptcy filings, but lagged by one year. That is, if consumer bankruptcy filings decreased in a given year, religious organizations' chapter 11 filings decreased in the next year. I linked this result to how religious organizations' leaders came to think about using bankruptcy to deal with their organizations' financial problems.
Since my original data collection, four years has passed. I thus recently identified all the religious organizations that filed under chapter 11 between the beginning of 2014 through the end of 2017. During these four years, religious organizations continued to file, but in smaller numbers per year, as shown in this graph (note: I count jointly-administered cases as one case).
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Audio Recordings of Bankruptcy Court: News from Delaware
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Several Credit Slips posts from earlier this year (here and here) focused on the virtues of courts releasing digital audio recordings of hearings, and specified the Judicial Conference authority for doing so. Over the summer, I found about three dozen bankruptcy courts for which at least one audio recording had been posted on a court docket in the prior year, albeit with significant variation in frequency of posting.
It is great to be able to report that the U.S. Bankruptcy Court for the District of Delaware has joined the group of bankruptcy courts using this technology (announcement here with the details). Proceedings before Judge Carey are the first to be posted, with other judges' hearings potentially to follow.
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Bankruptcy, Illness, and Injury: More Data
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A while back, political scientist Mirya Holman and I wrote a book chapter making sense of existing (and dueling) studies of the relationship between medical problems and bankruptcy, and presenting new findings from the 2007 Consumer Bankruptcy Project on debtors who entered into payment plans with their medical providers and fringe and informal borrowing for medical bills. Given the enduring interest in household management of out-of-pocket expenses associated with illness and injury, we recently posted an unformatted version of the chapter so it can be useful to more researchers and advocates. Download it here.
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ProPublica: The Bankruptcy System Fails Black Americans
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It's been a busy day, but before I sign off for the evening, I would be remiss not to flag Paul Kiel's outstanding piece that came out this morning, How the Bankruptcy System is Failing Black Americans. ProPublica and The Atlantic co-published the article. An extensive data analysis also accompanies the article. Anyone who follows Credit Slips will want to read these pieces.
Kiel finds chapter 13 filings are about three times higher in predominately black zip codes as compared to predominately white zip codes. Of course, these findings very much parallel our earlier work, which I blogged about here back in 2012. Like our work, the disparities Kiel finds remain even after statistically controlling for financial and other variables that should determine chapter choice. Because chapter 13 is generally a more expensive choice than a chapter 7, requiring a payment plan that many debtors don't complete (and hence don't receive a discharge), the racial differences are troubling.
Where Kiel's article really shines are the interviews with the attorneys and bankruptcy debtors in Memphis, Tennessee. The interviews put faces and stories to the statistics that we can't do in academic studies. Check out Kiel's work.
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An Explanation for the Low Bankruptcy Rates: Debt
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Yesterday, I noted the U.S. bankruptcy filing rate of 2.38 per 1,000 persons is at historic lows. The next question is always why. In this post, I am going to try to walk through an explanation in four graphs. The upshot is that consumer debt is low but rising. As I like to say, it takes years of study to come to the conclusion that people file bankruptcy because they are in debt. This is not to say that other factors are not contributors — unemployment, general economic conditions — but the primary macroeconomic driver of bankruptcy filings is the amount of debt on household balance sheets.
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Bankruptcy Filings Holding Steady for the First Half of 2017
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Using data from Epiq Systems, we appear to be on track for 774,000 bankruptcy filings for the 2017 calendar year. That would basically be the same rate of filings as in 2016 when total filings were just under 772,000. This calculation comes from a simple extrapolation. There were just under 400,000 bankruptcy filings for the first six months of this year. To get an estimate of what filings will be for the entire year, we cannot simply double the six-month figure because bankruptcy filings tend to be higher in the first part of a year. In the past two years, the first six calendar months have seen 51.6% of the total filings for the year. Thus, just under 400,000 filings for the first six months of a calendar year would imply about 774,000 filings for the entire year.
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New Article from the Consumer Bankruptcy Project: Attorneys’ Fees and Chapter Choice
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Many of us on Credit Slips have been part of the Consumer Bankruptcy Project (CBP), a long-term research project studying people who file chapter 7 and 13 bankruptcy. Several years ago, some of us blogged about the writings from the last CBP iteration in 2007. In 2013, the CBP was relaunched as an ongoing data collection effort. The CBP’s current co-investigators – myself, Bob Lawless, Katie Porter, and Debb Thorne – recently posted “No Money Down” Bankruptcy, the first article analyzing data from the Current CBP (data from 2013-2015), combined with 2007 CPB data. The article focuses on the timing of when debtors are required to pay their bankruptcy attorneys to report on the increasingly prevalent phenomenon of debtors paying nothing in attorneys’ fees before filing chapter 13.
This nationwide phenomenon raises questions about how people are accessing bankruptcy and the extent of the benefits they receive from the system. The phenomenon also explains some prior findings about the intersection of race and bankruptcy filings. And it adds to our knowledge about regional disparities in the percentage of people who file chapter 7 versus chapter 13 bankruptcies.