Friday, October 17, 2008

BAPCPA At Three Years Old: Measuring the Statistical Impact on Texas Filings

Today is the third anniversary of the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which seemed like a good time to look at the lasting impact of this legislation on bankruptcy filings. At this point, filings remain substantially down from the period prior to adoption of the statute. In fact, BAPCPA may have eliminated over 121,000 filings in Texas over a three year period. BAPCPA has also had a smaller impact in encouraging debtors to choose chapter 13 over chapter 7. However, the fact remains that cases under both chapter 7 and chapter 13 are way down.

How to Slice the Numbers

Most bankruptcy statistics are reported based on either a calendar year or a fiscal year which coincides with a calendar month. This is not very useful for evaluating the effect of BAPCPA because its effects took place within the middle of two months. Specifically, the legislation was adopted on April 20, 2005 and took effect on October 17, 2005. During the period between adoption and the effective date, there was an historic surge in filings followed by a substantial drop-off. Thus, to accurately measure the effect of BAPCPA, it is necessary to find a "normal" period of time to compare to each of the years which began on October 17 and ended on October 16 after the effective date. Additionally, in order to gauge the true impact of the legislation, it is necessary to factor out the huge increase in filings leading up to the effective date.

To accomplish this goal, I selected the period of October 17, 2003 to October 16, 2004 as my baseline or "normal" year. In a previous article, I used the period from April 20, 2004 to April 19, 2005 as my baseline period. However, there was already evidence of increased filings during the months when Congress was debating BAPCPA so that it was necessary to step back a little further. I used the period from October 17, 2004 to October 16, 2005 as my surge period. While there was not a surge going on for all of these months, the use of an annual period made it easier to calculate the full effects of the legislation. Then I used each of the years from October 17 to October 16 as my post-BAPCPA period.

Annual Filing Rates

The following table looks at the total filing rates for the state for each of the five years being compared.

The graphics are somewhat hard to read. However, the story that the numbers tell is that in 2003-2004, there were 92,872 chapter 7 and chapter 13 filings in Texas. This surged to 135,900 in 2004-2005. In the first year after BAPCA, filings dropped to just 29,163. In the two most recent years, they have grown to 41,095 and 43,631. This means that Texas chapter 7 and chapter 13 filings had dropped 53% from the last "normal" pre-BAPCPA year of 2003-2004. This indicates that BAPCPA is having a long-term effect on filings. The decline in filings is being felt across the board. While chapter 7 filings were down 60% from the pre-BAPCPA level, chapter 13 filings were down 44% as well.

Difference in Filings Because of BAPCPA

One way to look at the numbers is to project what filings would have been under the old law and compare them to filings under the new law. I started with the 2003-2004 filings of 92,872. Over three years, it could be predicted that there would have been 278,816 filings in Texas. There were actually 113,889 filings during the three years of 2005-06, 2006-07 and 2007-08. However, to get an accurate picture, it is necessary to subtract out the excess "surge" filings from 2004-05. Most likely, many of these debtors accelerated their decision to file bankruptcy. There were 43,028 filings in 2004-05 in excess of the baseline year. When these figures are added together, they indicate a net loss of almost 122,000 cases over three years.

Predicted Three Year Filings:
Less Actual Filings:
Less "Surge" Filings:
Net Loss:

While BAPCPA was intended to encourage debtors to file chapter 13, it has resulted in a dramatic decrease in the number of chapter 13 cases filed. Chapter 13 filings in Texas during 2007-08 were 44% below their level in 2003-04. Using the same calculation, the number of chapter 13 filings lost can be estimated as follows:

Predicted Three Year Filings:
Less Actual Filings:
Less "Surge" Filings:
Net Loss of Chapter 13 Cases:

Change in Chapters Filed

Although BAPCPA resulted in a net drop in the overall number of chapter 13 cases filed, it did result in a shift in the relative percentage of each chapter of cases filed.

In 2003-04, 57% of the cases were filed under chapter 7 and 43% were filed under chapter 13. Two years later in the first post-BAPCPA year of 2005-06, this had changed to 40% chapter 7 cases and 60% chapter 13s. In the most recent year of 2007-08, the breakdown was 49% for chapter 7 to 51% for chapter 13. Thus, one effect of BAPCPA has been to make chapter 13 the more commonly used chapter, although the gap has narrowed substantially.


Bankruptcy Lawyer said...

I wonder if Obama takes office that the federal law will have an impact on Texas bankruptices. I have friends that our bankruptcy lawyers in Arizona and California and they both theorize that if Obama allows for home prices to be written down there will be another surge in bankruptcy filings US wide.

Patches said...

There will be a rush on BKs if we amend the code to modify mortgage contracts. It does not have to be permanent! It could be like Ch 12s, enacted whenever congress thinks we need it. 30 year fixed could be excluded as bargaining point. I think even if we only could modify “Option” ARMS and ARMS that could serve to provide enough relief to make a difference. On of the serious downsides to this whole mortgage mess came about because we cannot stop the freefall of home values. I know the argument for letting “market” forces work, but if we can stop the bleeding in Bankruptcy, we could have “Court” “Confirmed” values on homes. I know Steve has blogged on this before but we can even get the taxing authorities to revise their tax valuations as well with one stone. The reason why these people are hurting and why the “servicing” cos. are denying loan mods in droves is because of the debt to income ratios. Well in BK we help by reducing the debt to income ratio by valuing collateral (hopefully) in homes, (we do it know on) vehicles and pay pennies on the dollar for unsecured debt, all the while stopping interest and penalties on unsecured debt and even some IRS stuff. When people have “Option” ARMs and ARMs they are usually hit three times. 1. Option period ends, payments go up to a preset amount. 2. People paid a ridiculous amount for their home (no money down) not the taxing authority wants more money. 3. In Texas we have a hurricane and now windstorm Insurance is ridiculous. Those three hits in combination are killers. Plain and simple, mortgage mods in Bankruptcy is the shortest rout from A to B and we don’t have to deal with “pooling and servicing” agreements and Investors that may or may not be in this country.