The Risk Professional: US personal insolvencies up 20% in y/e June

The Courts service says that the number of new insolvency cases in June was 1,572,597 - more than any previous year since new laws were introduced in 2005 to actively reduce the number of cases.

The Bankruptcy Abuse Prevention and Consumer Protection Act, 2005, was designed to help consumers avoid personal bankruptcy by ensuring a range of steps were taken before a petition was presented.

The increase in cases, up from 1,306,315 in the previous year, comes at a time when economists and governments are saying that the worst of the recession is behind us. That is not a view shared by commentators on this platform who have, since 2006, been pointing out that a major financial crisis is developing and that the 2007-9 crisis is in fact the first dip of a double dip recession where the second dip is likely to be more severe than the first.

The US bankruptcy figures support the arguments our commentators have been making: that the TARP money never reached its intended targets, that consumer debt is so high that borrowers end up churning one new loan (if they can get it) to repay another or feeding their debt from meagre equity in their property, that repossessions are once more increasing and that employment is hovering (+ or - a small amount each month) at close to levels not seen since the 1930s. Although government money is being fed directly through some state governments to support mortgagors in trouble, it's a tiny amount of money and no relief is available for car loans, credit card debt or other financing liabilities.

The figures show the number of people who have reached the end of the financial line.

But the figures will also include a number of people who have concluded that times will improve in the medium term and that if they choose bankruptcy now, then when conditions are better, they will be able to take advantage of that free of debt.

For businesses, the picture is less worrying but they are not encouraging either. Business filings increased by 8% totalling 59,608, compared with 55,021filings reported a year earlier.

The USA calls all insolvency proceedings by the umbrella term "Bankruptcies" and they are all covered by the Bankruptcy Code, the important parts of which, for the purpose of this articles are Chapters 7,11,12 and 13.

The figures, broken down by Chapter (as provided by the US Courts service) are as follows:

In the 12-month period ending June 30, 2010 increased filings were seen in all bankruptcy chapters.

* Chapter 7 filings (personal bankruptcy): 1,133,320 up 25 percent from the 907,603 Chapter 7 filings in the 12-month period ending 30 June, 2009.* Chapter 13 (individual voluntary arrangements): 424,242, up 10 percent from the 384,187 filings in the 12-month period ending 30 June, 2009.* Chapter 11 filings (corporate voluntary arrangements, administration, etc.):14,272, up 2 percent from the 13,951 filings in the 12-month period ending 30 June, 2009.* Chapter 12 filings (special arrangements by employed farmers and fishermen) rose 56 percent to 660 from the 422 filings in the 12-month period ending 30 June, 2009.

Some may see some comfort in comparing the latest figures with those released for the year ended 31 March: they showed a 27% increase in the preceding year.