The correlation between Chapter 11 Filings and Economic Recessions in the United States

There have been economic recessions in the United States since 1980 during these periods:

  • July 1981-Nov 1982
  • July 1990-Mar 1991
  • Mar 2001-Nov 2001
  • Dec 2007-June 2009

To determine whether there is a correlation between those four economic recessions and the number of Chapter 11 cases filed nationwide, I took into account two possible causes for dramatic changes in Chapter 11 filing rates other than the recessions. I did not take into account other causes, if any.

Significant events that affected Chapter 11 filing rates since 1980, other than economic recessions, at least included the Bankruptcy Reform Act of 1978 (effective October 1, 1979) and enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on April 14, 20065 (effective October 17, 2005).

Chapter 11 filings following enactment of the Bankruptcy Reform Act of 1978 exceeded 20,000 in each year from 1983 to 1987 and again from 1990 to 1992. Chapter 11 filings peaked at almost 25,000 in 1987 and were never that high again.

July 1981-Nov 1982 recession. Although Chapter 11 filings increased dramatically following the July 1981-Nov 1982 recession, without knowing a lot more than I know, I cannot tell whether there was a correlation between the increased filings and that recession. Following enactment of the Bankruptcy Act of 1978, Chapter 11 filings increased each year between 1980 and 1987.

July 1990-Mar 1991 Recession. There is a strong correlation between the number of chapter 11 filings and the recession of July 1990-Mar 1991. Chapter 11 filings spiked in 1990, spiked again in 1991, and started to decrease in 1992 but were still quite high. Chapter 11 filings decreased in each of the next several years.

Mar 2001-Nov 2001 Recession. I see a correlation, but of a much lesser magnitude, between the number of chapter 11 filings and the short lived recession of Mar 2001-Nov 2001. Chapter 11 filings increased by about 15% from 2001 to 2002, started to decease in 2003, and decreased again in 2004.

Dec 2007-June 2009 Recession. There is a dramatic correlation between the number of chapter 11 filings and the great recession of Dec 2007-June 2009. Chapter 11 filings increased about 60% from 2007 to 2008, increased another approx. 50% from 2008 to 2009, then started gradually decreasing in each of the next few years.

The chart immediately below summarizes the causes of each of the four economic recessions and the number of chapter 11 cases filed just before, during and just after each recession.

Period of Recession Cause of Recession Correlation of Recession with Chapter 11 Filings
July 1981-Nov 1982 The Iranian Revolution resulted in a sharp increase in the price of oil causing an energy crisis starting in 1979.

 

Chapter 11 filings were also affected by the Bankruptcy Reform Act of 1978.

Chapter 11 filings increased from about 5,400 in 1980; to about 10,000 in 1981; to about 19,000 in 1982; to more than 20,000 in each of 1984 and 1985.

The Bankruptcy Reform Act of 1978 went into effect on October 1, 1979. The increased filings undoubtedly were dramatically affected by the new bankruptcy law.

July 1990-Mar 1991 After a lengthy economic expansion, inflation began to increase. The Federal Reserve raised interest rates from 1986 to 1989 to combat inflation. In a weakened economy, oil prices rose sharply in 1990 as a result of an Iraqi invasion of Kuwait on August 2, 1990. Chapter 11 filings increased from about 18,000 in 1989; to about 19,000 in 1990; to about 21,000 in 1991; to about 24,000 in 1992.

 

Chapter 11 filings decreased to about 23,000 in 1993; to about 19,000 in 1994;to about 15,000 in 1995.

Mar 2001-Nov 2001 Following a long period of growth, the dot.com bubble burst and the September 11, 2001 attack occurred. Chapter 11 filings increased from about 9,900 in 2000 to 11,424 in 2001.

Chapter 11 filings dropped slightly in 2002 to 11,270.

Dec 2007-June 2009 This is sometimes known as the great recession. There was a subprime mortgage crisis combined with soaring oil prices. The stock market tumbled. Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Citi Bank and AIG failed. There was a crisis in the automobile industry. The federal government responded with an unprecedented 787 billion fiscal stimulus package and a $700 billion bank bailout. Chapter 11 filings had decreased from about 10,000 in 2004 to 6,800 in 2005 following the passage of BAPCPA.

Chapter 11 filings increased from about 6,350 in 2007 to about 10,000 in 2008; to about 15,000 in 2009.

Since that time, Chapter 11 filings have decreased. For the past five years (2014 to 2018), chapter 11 filings have ranged between 7,095 (in 2018) and 7,442 (in 2017).

 

The chart set forth below shows the number of Chapter 11 filings nationwide by category from 2001 to 2018. The number of total chapter 11 filings nationwide, and the number of business chapter 11 filings and non-business chapter 11 filings, was compiled from data maintained by the Administrative Office of the United States Courts and reported on uscourts.gov.

The data for individual debtor chapter 11 filings in 2002 to 2008 was taken from data compiled by the office of the United States Trustee. The data for individual debtor chapter 11 filings in 2010 and 2013 was taken from data compiled for the 2017 National Study of Individual Chapter 11 Bankruptcies published by ABI. Given the disparity in the data, I am not sure the UST data as reported in the chart is correct.

Year Chapter 11 Filings Nationwide Business Ch 11

Nationwide

Non-Bus. Ch 11 Nationwide Individual

Chapter 11

2001 11,424 10,641   783
2002 11,270 10,286   984 1,083 (9.61%)
2003   9,404   8,474   930 1,086 (11.55%)
2004 10,132   9,186   946 1,162 (11.27%)
2005   6,800   5,923   877 1,153 (16.96%)
2006   6,153   4,643   520     883 (14.35%)
2007   6,353   5,736   617 1,257 (19.77%)
2008 10,160   9,272   888 1,724 (16.26%)
2009 15,189 13,683 1,506
2010 13,713 11,774 1,939 4,049 (29.53%)
2011 11,529   9,772 1,757
2012 10,361   8,900 1,461
2013   8,980   7,660 1,320 2,617 (29.14%)
2014   7,234   6,093 1,141
2015   7,241   6,130 1,111
2016   7,292   6,174 1,118
2017   7,442   6,350 1,092
2018   7,095   6,078 1,017

This graph (click on it) is a representation of the number of chapter 11 case filed nationwide from 1980 to 2008.