WASHINGTON -- In another promising sign of economic recovery, the torrid pace of personal and business bankruptcies slowed during the third quarter.
In the first quarterly decline since the overhaul of bankruptcy laws in 2005, commercial, or business bankruptcy filings, fell 4.5 percent to 22,710 in the third quarter from 23,782 in the second quarter, according to data compiled by Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company.
The 7,405 business petitions filed in August and the 7,215 in September were the first back-to-back monthly declines since November and December of 2006, AACER data show.
According to AACER, consumer bankruptcy filings from July to September continued a streak of 15 consecutive quarterly increases dating back to enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act in October 2005.
However, the third-quarter increase -- up 2 percent from the second quarter -- was smaller than the 15.4 percent spike from the first quarter to the second quarter of 2009. The third-quarter increase also was the smallest quarterly increase since AACER began tracking the data in 2006.
The ebb in filings doesn't mark an end to the recession — not with unemployment approaching 10 percent, commercial credit still tight, a new round of adjustable-rate mortgages that reset next year and tepid consumer spending amid continuing job losses.
When coupled with rising home mortgage applications and a slowdown in new jobless benefit claims, however, the bankruptcy slowdown offers more hope that the economy is starting to stabilize.
"It's certainly not bad news that they're leveling off," said Robert Lawless, a law professor at the University of Illinois and a bankruptcy expert. "When filings are going down it's an indication that things are probably doing better. But if you want to use (bankruptcy) filings as an indicator of the economy, we have to recognize they're a weak indicator and a lagging indicator at that."
Lawless said the moderation in third-quarter filings was less impressive because the filing rate for all bankruptcies still hovers at about 6,000 a day. That rate has held fairly steady since March.
Personal bankruptcies, which topped 1 million for the year in September, dominate the filings; commercial bankruptcies account for only about 350 filings a day.
For the first nine months of the year, personal bankruptcies are up more than 34 percent over 2008.
Along with the credit squeeze and tight economy, Lawless said this year's higher bankruptcy rates stem from the 2005 law, which made it harder for people to write off their debt. That law led to a rush of filings in 2005, which artificially depressed filing rates in 2006 and 2007.
"The story since then has been that bankruptcy filings have been going back to their natural level before the law was enacted," Lawless said.
Lawless and other experts expect more than 1.4 million personal and commercial filings this year, which is about the same level as it was in the late 1990s and prior to the 2005 law, he said.
For the year, commercial bankruptcy filings are up 45 percent, from 46,122 filings in 2008 to 66,967 through September, AACER data show.
The business bankruptcy filings reported by AACER are typically higher than official government figures.
AACER president Mike Bickford said his company records any filing as a commercial bankruptcy if, instead of a Social Security number, the petition is filed with a taxpayer identification number or with some other indication that it's a commercial case, such as the phrase "doing business as."
Included in these filings are many sole proprietors whose bankruptcy petitions wouldn't be considered business filings under government tallies.
Thirteen states showed a decline in total filings from August to September, led by North Dakota and Texas, down 17 percent and 16 percent respectively. Georgia followed with an 11 percent reduction, and Nevada's September filings dipped 8 percent from August.
Nevada led the nation in filings per capita, at more than 11 per 1,000 residents. Tennessee was next with nearly eight, while Georgia, Indiana and Alabama averaged more than 7 per 1,000 residents.
Nevada also had the greatest year-to-year increase in per-capita filings, followed by Arizona, California, Utah and Michigan.
Alaska had the lowest filing rate, just over one per 1,000 residents. The District of Columbia was next at nearly two per 1,000. South Carolina, Texas and South Dakota averaged just over two filings per 1,000.
Arizona led the nation with a 72 percent increase in average filings per month from a year earlier. Nevada was next, up 59 percent, followed by Wyoming's 57 percent increase. Utah and California were next with increases of 54 percent and 53 percent respectively.
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