The Judiciary Data and Analysis Office of the Administrative Office of the US Courts has launched a new feature called "Just the Facts," highlighting statistical trends in the US judiciary. Table 2 and Chart 3 of the inaugural report reflect a curious spike in the appellate reversal rate in bankruptcy cases in 2015. While the reversal rate for both ordinary civil cases and bankruptcy cases in the Courts of Appeals had hovered steadily around 10-12% from 2011 to 2014, the reversal rate in bankruptcy cases suddenly shot up to double that, 24% (!), in 2015. It is not entirely clear to me whether this is reversal of the Bankruptcy Courts' rulings or the District Courts' rulings (it may be a bit of both, taking into account direct appeals, etc.), but in either case, whoa! Anyone have any idea what happened here? Why did the appellate courts get so mad at the lower courts in bankruptcy cases all of a sudden the year before last? I wonder if this continued in 2016. Lots of Stern reversals? Something else? Curious.

UPDATE 1/31/17: Bankruptcy statistics guru, Ed Flynn (whose fabulous work you've probably seen in the ABI Journal), helped me to understand that (1) the statistics referenced here (from Tables B-1 and B-5)  are for appeals from District Courts to Courts of Appeals, as BAP cases and District Court bankruptcy appeals are reported elsewhere (Tables BAP-1 and -2 and C-7, none of which indicates the numbers of reversals at these intermediate appeal levels), (2) the 110 merits reversals in 2015 come predominantly from the 11th Circuit and involve mostly one appellant, (3) we can probably now guess who it was and therefore what happened: Bank of America's appeals of wholly underwater second mortgage stripdown in Ch. 7  had to be granted (lower courts reversed) after the Supreme Court reversed the aberrant 11th Circuit position on allowing such stripdowns in Caulkett in mid-2015. Mystery most likely solved. Thanks, Ed!

According to Epiq Systems, there were 771, 894 total U.S. bankruptcy filings in 2016, a decline of 5.8% from 2015. The overall annual decline in 2015 was 10.0% and was 11.8% in 2014.  As I noted yesterday, the rate of decrease is decreasing.

At the beginning of 2016, I projected 780,000 filings for the year. That forecast was only 1.0% off. Pride goeth before a fall. Here is my thinking for 2017.

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Something happened in the U.S. bankruptcy courts that had not happened since October 2010. The daily filing rate increased on a year-over-year basis. There were 56,394 filings in December 2016 as compared to 53,844 in the previous December. Also, because the 2016 filings were spread over one less business day than in 2015, the rise represented a 9.7% increase in the daily filing rate. The lighter-red line in the graph to right the shows just how dramatic the spike was.

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Forecasting U.S. bankruptcy filings for this year was a little more complicated. In a comment to my post about the total 2015 bankruptcy filings, Erich Fabricius made the astute observation that December 2016 saw the introduction of new bankruptcy forms and that could explain my befuddlement at the abnormally large 14.8% decline for December in terms of year-over-year daily filing rates. November, in contrast, saw almost no decline in the year-over-year rate, which is also unusual. The relatively stronger numbers in November suggests that attorneys were perhaps trying to beat the deadline before the new forms went into effect. The effect would not have to be huge — shifting 5,000 filings from December into November would have been enough to create this effect.

What that means is my preferred mathematical model to predict bankruptcy filings for the next year has to start with the immediately previous two months being untypical months. If I run the model with the actual data, I get 800,000 filings. If I "correct" the numbers for November and December to what would have been expected had recent monthly trends continued, the model predicts 782,000 filings. The model controls for the amount of outstanding consumer credit and national personal income and has proven accurate in the past. 

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According to the latest figures from Epiq Systems, total U.S. bankruptcy filings dropped 10% in 2015. The yearly total was 819,240 compared to 910,090 the previous year. As bankruptcy experts know, these figures are low. In 2015, there were 2.55 bankruptcy petitions per 1,000 persons, the lowest figure since 1989, ignoring the statistical gyrations around the 2005 bankruptcy law. If the decline keeps up, we won't even have to ignore the 2005-06 statistical gyrations for the statement to be true.

Last January, when forecasting the number of 2015 filings, I wrote, "a good estimate for 2015 bankruptcy filings is 800,000." That turned out to be not too bad of a forecast, off by only 2,5%. As the model I used seems to have been a good prediction, I will try it again and post the results here on Credit Slips.

Before I go off to crunch numbers, one other thing caught my eye in the latest numbers. The daily filing rate for December was only 2,446, which was a year-over-year decline of 14.8%. The decline in U.S. bankruptcy filings had been slowing, and I was expecting the decline to eventually flatten out. December is an unusually slow month for bankruptcy filings, but it is an unusually slow month every year. I am always cautious about extrapolating too much from one month of data, but the size of the decline in December took me by surprise.