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Posted by: Walter Metzen
Bankruptcy filings are continuing to decline, with fewer than 800,000 people filing in federal courts last year.
All bankruptcy cases are handled in federal courts, per the U.S. Bankruptcy Code.
Although 800,000 seems like a lot, it pales in comparison to the height of the economic collapse in September 2010, which saw nearly double the amount of filings, according to statistics released by the Administrative Office of the U.S. Courts. The number of bankruptcy filings in the 2016 calendar year was the lowest for any calendar year since 2006.
While it’s also the sixth consecutive year that bankruptcy filings have fallen, 2016 saw the decline at its slowest — 5.9 percent for the year. It was the first calendar year that the rate of annual decline was less than 10 percent.
By the numbers, here’s how bankruptcy filings broke down in 2016:
- 794,960 total bankruptcy filings for the 12-month period ending Dec. 31, 2016;
- 490,365 of those were Chapter 7;
- 296,655 were Chapter 13;
- 7,292 were Chapter 11;
- and 461 were Chapter 12.
The Fall of Bankruptcy Filings
Consecutive double-digit declines were the norm for 2015 and a few years prior — every reporting period since December 2011, the Administrative Office of the U.S. Courts reports.
Comparing 2016 to 2015 filings through Dec. 31, overall filings decreased 5.9 percent, while terminated cases decreased 7.1 percent and pending cases decreased 8.1 percent.
Those seeing the largest decrease in the amount of bankruptcy filings over 2015 numbers were those filing in the 9th Circuit — covering California, Arkansas, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Northern Mariana Islands — with 9.9 percent fewer cases. Meanwhile, the individual District with the largest decrease was in the 11th Circuit: Southern Florida recorded just over 18,000 bankruptcy filings in 2016, which was 22.3 percent fewer filings than 2015.
You can find more details of 2016 bankruptcy filings by county here.
Non-business vs. Business Bankruptcies
The Administrative Office of U.S. Courts classifies a bankruptcy case as non-business or business based on the nature of debt. Corporations or partnerships fall under business, or if debt related to the operation of a business predominates. Consumer debt or other debt that’s neither consumer nor business falls under non-business filings.
Most bankruptcy filings are non-business. In 2016, that total number was 770,846, with 475,332 of those cases Chapter 7 bankruptcies. Chapter 13 non-business filings followed at 294,396, and Chapter 11 at 1,118.
Meanwhile, 24,114 business bankruptcy filings in the U.S. were recorded last year, with Chapter 7 also the majority (15,033). Chapter 11 business cases totaled 6,174, with Chapter 13 following at 2,259 and Chapter 12 at 461.
The largest of the Circuits, the 9th Circuit, recorded 132,347 bankruptcy filings in 2016, split among 127,595 non-business and 4,752 business.
Why is Chapter 7 So Popular?
The stats don’t lie — Chapter 7 is the most popular way to file bankruptcy. But why?
Chapter 7 is one of the most popular ways individuals can file for bankruptcy (the others are Chapter 13 and 11), while businesses can file for Chapter 7 or 11 to reorganize. Less common are Chapter 9, when municipalities need to reorganize; Chapter 12, which provides debt relief to family farmers and fishermen; and Chapter 15, which involve parties from more than one country.
Chapter 7 is often the preferred filing because it involves no repayment of debt. While a debtor must be prepared to lose property and/or subject it to liens and mortgages, their bankruptcy trustee will take care of gathering and selling any nonexempt assets and use the proceeds to pay creditors back. Most people who file bankruptcy can use exemption laws to their benefit and retain their property.
To qualify for relief, debtors must pass the means test if they have above-average income based on similarly situated individuals in their state. An individual also must receive credit counseling months before filing for Chapter 7 (with few exceptions), and cannot file under Chapter 7 or any chapter if a prior bankruptcy petition recently was dismissed by the court or debtor.
While individuals can file for bankruptcy without a lawyer — called filing pro se — it’s highly recommended to use a lawyer’s services, as bankruptcy has long-term financial and legal consequences.
While a bankruptcy discharge releases debtors from personal liability for most debts, Chapter 7 discharge is subject to many exceptions, which may require legal counsel before filing.
The good news is, though the Administrative Office of U.S. Courts reports individual debtors receive a discharge in more than 99 percent of Chapter 7 cases.
If you need the help of a lawyer, we can find one to win your bankruptcy case. Contact us today for a free debt evaluation 24/7 at (877) 280-4299.
Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.