Bankruptcy Filings Inched Upward in February by 3.27 Percent

With 40,305 new bankruptcy filings in February, the pace of increase cooled a bit from recent gains. Total filings went up by 3.27 percent over February 2024. That is the smallest monthly year-over-year rise in more than two years. There is no clear reason for the slower pace, although it is partly due to an extra day of filings last February because of Leap Year.

A Closer Look by Chapter

There were wide variations in filings by chapter, but all chapters experienced some slowing compared to recent patterns.

Chapter 7 liquidation cases went up by 6.6 percent, which was a larger increase than under any other chapter.

Chapter 13 cases with repayment plans also increased, but only by 0.54 percent. In many places, homeowners have seen rapidly rising home equity values, which allow them to delay or even avoid bankruptcy.

Chapter 11 cases, mainly business reorganizations, plummeted by 35.51 percent compared to last February. One apparent explanation is the spike in January filings, up by more than 30 percent. More moderate changes often follow months of high volume in the next few months. Perhaps even more significantly, chapter 11 filings last February were exceptionally high (the second-highest monthly increase in all of 2024) and were unlikely to be matched this year.

Subchapter V small business filings skidded downward by 14.5 percent. It seems more clear each month that the lower eligibility debt limit has made a major dent in such filings.

More Flashing Lights for Consumer Lenders

The Federal Reserve Bank of New York published its household debt and credit report for the 4th quarter of 2024. Previous warning lights were amplified as most categories of consumer debt increased. Delinquency rates went up for credit cards and auto loans. “High auto loan delinquency rates are broad-based across credit scores and income levels,” according to Fed economic advisor Wilbert van der Klaauw. The report is found here: https://www.newyorkfed.org/newsevents/news/research/2025/20250213.

Federal Reserve News

Federal Reserve Chair Jerome Powell announced last week that interest rates would hold steady longer. Citing near-term uncertainly in the economic outlook, Chairman Powell suggested that rate cuts would not be considered until later in the year. The Fed’s interest rate decisions will be worth watching because rates often drive commercial bankruptcy trends.

Recap of Some Regulatory News From the Nation’s Capital

A change in Presidential Administrations always brings some personnel upheaval and uncertainty, but that is turbo-charged so far this year. Here are some updates that affect consumer lenders:

• Consumer Financial Protection Board (CFPB): After Biden-appointed CFPB Director Rohit Chopra was fired, several major actions followed.
  
  President Trump took a page from his first term using the Vacancies Act to designate a Cabinet Secretary to do double duty as Acting Director. First, he chose newly-minted Treasury Secretary Scott Bessent and then OMB Director Russell Vought. Employees were ordered to stay home and only a few legislatively-mandated activities continue.
  
  Jonathan McKernan, currently a member of the Board of the Federal Deposit Insurance Corporation, was nominated as CFPB Director. His nomination is awaiting Senate floor action and he is expected to be confirmed soon. Mr. McKernan has promised that the CFPB will carry out its statutorily mandated functions.

• Federal Trade Commission (FTC): New Chairman Andrew Ferguson had been presiding over a Commission that was knotted at two Republican Commissioners to two Democrats. That threatened to prevent some initiatives from moving forward. However, President Trump fired the two Democrats even though the FTC statute limits the President’s authority to dismiss Commissioners. The dispute is likely to be resolved by the Supreme Court, along with a number of other dismissals. The Department of Justice has already said that it intends to seek to overrule Supreme Court precedents that insulate independent regulatory agencies from Presidential control.
  
  The current two-person Commission can conduct business, and the Republican incumbents will soon be joined by Trump nominee Mark Meador, who is awaiting Senate confirmation. Mr. Meador already received Senate committee approval, and his nomination is expected to reach a floor vote in the very near future.

• Office of Comptroller of the Currency (OCC): This major bank regulator has not had a permanent head in more than five years. In February, President Trump nominated Washington, D.C. lawyer Jonathan Gould, who also served as the OCC’s chief legal officer during President Trump’s first term, for a five-year term as the next Comptroller of the Currency.

• Federal Reserve: President Trump nominated Federal Reserve Governor Michelle Bowman as the Vice Chair for Supervision of banks. She will replace the controversial Michael Barr, who many bankers considered overly aggressive.

• U.S. Trustee Program: After two years on the job, Tara Twomey was fired as Director of the U.S. Trustee Program (USTP). Her predecessor served as Director for 17 years under Republican and Democratic Administrations, but changes in the head position changed more frequently prior to that. Many other Justice Department officials have been removed, including on the day Ms. Twomey was terminated without notice.

Conclusion

Bankruptcy filings were up by less than many expected in February, but there is scant evidence that upward trends will reverse. Higher interest rates affect the number of corporate bankruptcies and, perhaps to a lesser extent, consumer bankruptcy filings. The Fed’s decision to keep rates at current elevated levels suggests that bankruptcies may continue to rise. The Nation’s Capital is filled with action and uncertainty these days. We will keep watch to see what this all means for lenders and debtors contemplating bankruptcy.