A report released today by the Automated Access to Court Electronic Records [AACER], a top provider of U.S. bankruptcy data – shows consumer and commercial bankruptcy filings are on pace to reach 1.5 million this year.
In May, the number of bankruptcy filings reached 6,020 a day, up from 5,854 in April, AACER says…[T]he number of filings is up sharply from last year’s 1.1 million, says Robert Lawless, professor of law at the University of Illinois.
Over the past decades, consumers who were hurting financially could rely on credit cards to help them tread water. “The fact that consumer credit has tightened and shrunk explains why bankruptcy filings have now gone up so dramatically,” Lawless says.
Even the commercial bankruptcy rate is soaring, driven by shrinking sales and tight credit markets.
Last month, commercial filings hit 376 a day, up from 255 in May 2008.
The wave of corporate bankruptcies will cause a secondary wave in consumer filings, says John Pottow, University of Michigan bankruptcy law professor.
“Nevada doesn’t surprise me,” Pottow says. “It is ground zero of the housing crisis.”
And California also has suffered from the boom and bust of the housing market. By contrast, Michigan is dealing with the collapse of the auto industry.
Bankruptcy filings are not climbing at the same rate in every state. Nevada, Michigan and California had the biggest per-capita increase in bankruptcy filings in May, according to AACER.
The recent bankruptcy filings of Chrysler and General Motors, along with plant closings and job losses, will spark even more consumer bankruptcy filings, Pottow says.
Image: NY FED