OCTOBER 2004

Growth Fails to Bring Down Bankruptcies

Personal bankruptcies are stubbornly following a track this year that has kept them about 3 percent below last year's volume. Despite ongoing improvement in employment through 2004, and growth in personal incomes, bankruptcies have not declined as much as lenders had hoped. Using data compiled from courthouse records, the National Bankruptcy Research Center (Lundquist Consulting, Burlingame CA) reports that through the first 38 weeks of 2004 (as of September 25) personal bankruptcy filings were only about 3.3% lower than the same 38-week period in 2003. The chart below displays week-by-week filings for the past four years. This trend must be creating at least some unease among risk managers at major national lenders. Delinquencies, charge-offs and bankruptcies are cyclical. Creditors know that losses will rise again. But the lack of significant relief in the rate of bankruptcy filings under the current benign environment does not bode well for future bankruptcy losses when the cycle turns.

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