December Bankruptcies Rose 10.57 Percent, 2024 Total Filings Up 14.28 percent

Total bankruptcy filings rose sharply in December compared to the number of filings in the same month in the previous year.  Chapter 7 liquidations and chapter 11 (mainly) business reorganization cases clocked double-digit increases, while chapter 13 consumer repayment cases maintained a slower rate of increase.  Consumer and business debtors filed more than 38,000 new petitions last month, ending the year with a total of 508,778 bankruptcy filings (14.28 percent higher than 2023).  That is the highest annual total in four years. We will dive deeper into the trends in our upcoming 2025 Bankruptcy Outlook webinar.

A Closer Look by Chapter

Chapter 7 filings continued their brisk pace upward by registering a 15.47 percent rise over December 2023.  Chapter 7s have registered a double-digit increase in ten out of the last 12 months.  According to most analysts, the substantial increases are due to the inability of many consumers to make ends meet after the record-breaking stimulus programs expired a couple of years ago.

Chapter 13 cases, in which individuals retain most of their property in return for repaying at least part of their pre-petition debt out of current income, rose by an anemic 3.05 percent.  For 18 consecutive months, the rate of increase in chapter 13 filings has been below the pace of chapter 7s.  The rate of chapter 13 filings levelled off considerably throughout 2024 compared to the previous two years.

Chapter 11 filings rose by a robust 20.85 percent last month after falling in November.  As noted in this space last month, the November decrease was an anomaly because there was an unusual spike in chapter 11 filings in the same month in the previous year.  It appears that falling interest rates have not yet been enough to rescue the growing number of chapter 11 debtors.

Finally, subchapter V small business cases, which are a subset of chapter 11, fell by 1.63 percent.  Although many analysts say that small businesses are facing growing pressure because of pandemic-era loans coming due, the tougher eligibility rules that went into effect at the end of June are preventing some distressed businesses from filing.  Prior to the change, between one-quarter to one-third of all subchapter V filings were made by small businesses with debts above the current cap.  Those debtors now need to file under the more expensive regular chapter 11 process or forgo filing bankruptcy altogether.

Other News and Matters to Consumer Lenders

• Interest Rates Reduced One More Time:  On December 18th, the Federal Open Market Committee (FOMC) of the Fed cut interest rates by another one-quarter point down to a federal funds range of 4.25 to 4.50 percent.  That usually is met with a spirited rise in the stock market.  But not this time, as Fed Chair Jerome Powell used his news conference to cast doubt on future reductions.  Worse, the FOMC projected higher inflation than it had previously forecast for the next two years.   Once the recent rate cuts make their full impact on the economy, debtors may have more options to avoid bankruptcy, but maybe not for long.
• Consumer Regulatory Appointments Update: President-elect Trump has been filling out his administration at a fast pace. Here is an update on some consumer regulatory appointments:
  • Andrew Ferguson will be the new Chair of the Federal Trade Commission (FTC).  Mr. Ferguson has been serving as one of the two Republican Commissioners since February and will take the reins of the agency as early as January 20th.  The designation as chair does not require Senate confirmation.   Mr. Ferguson is an experienced lawyer with substantial government experience, including as a senior Congressional staff member and, most recently, as Solicitor General for the state of Virginia.
  • Mark Meador, another experienced lawyer and former Senate aide, will be nominated as Commissioner, which will give the Republicans a three-to-two majority.  Current FTC Chair Lina Khan, who is serving on an expired term, has not indicated whether she plans to resign or will leave only after her replacement is confirmed by the Senate.
  • Although both Commissioner Ferguson and Mr. Meador are best known for their work on anti-trust matters, they are expected to take a traditional approach to   consumer protection and privacy.  That may contrast with the FTC under Chair Khan who attempted to expand agency authority into novel areas.  Critics said that the Khan approach diminished the agency’s traditional emphasis on combatting fraud and other illegal practices that harm consumers.
  • Things remain surprisingly quiet on the personnel front at the Consumer Financial Protection Bureau (CFPB).  In recent Congressional testimony, activist CFPB Director Rohit Chopra said he will not resign until fired.  Although several names of candidates to succeed Director Chopra have been mentioned, the President-elect has not announced an intent to nominate anyone.  In fact, Director Chopra is reportedly lobbying to keep his job.  Given the controversial agenda pursued by Director Chopra, it is widely expected that he will be terminated shortly after the new President takes office.

Conclusion

With the change in Presidential Administrations, one can expect a lot of change in national economic policy during the coming year.  Some of those changes are sure to have an impact on bankruptcy filings.  But it is still too early to tell the direction or magnitude of the impact on financially stressed consumers and businesses.  But one thing is clear: bankruptcy data trends seldom change overnight. The sharp upward tilt in overall bankruptcy filings can be expected to continue as far as most of us can see.

For a recap of annual bankruptcy filings in 2024, an analysis of what may come in 2025, and an update on the legislative, regulatory, and personnel moves expected in the new Trump Administration, please join the AIS 2025 Bankruptcy Outlook webinar on January 22nd at 2pm ET. Happy New Year!