Economy Watch: Bankruptcy Rates Lowest in Years

The number of bankruptcy filings during 2016 was the lowest for any calendar year since 2006—another indicator that the economy has mostly recovered since the recession.

Court-photoDuring the 12-month period ending in December, there were 794,960 cases filed in federal bankruptcy courts, down from the 844,495 bankruptcy cases filed in calendar-year 2015. That’s a 5.9 percent drop in filings, according to U.S. Courts, a site published by the Administrative Office of the U.S. Courts on behalf of the Federal Judiciary.

That happens to be the lowest number of bankruptcy filings for any calendar year since 2006, and the sixth consecutive calendar year that filings have fallen. In fact, it’s actually the lowest level of filings since the mid-1990s, if 2006 is excluded, since the low level recorded that year was an outlier caused by changes to bankruptcy law in 2005 that tightened the screws on those filing for bankruptcy and thus discouraged it for a time.

Last year was also the first calendar year since 2011 that the rate of annual decline was less than 10 percent, which suggests that this particular metric won’t improve vastly more in the future. But in any case, the low level of filings last year is another indicator that economy has more-or-less recovered from the recession, and is now seeing a “normal” number of bankruptcies.

The great majority of bankruptcies are personal, and they have a fairly direct impact on certain real estate markets. The period of high bankruptcy filings was concurrent with high mortgage foreclosure rates, which depressed for-sale residential property prices and ultimately gave a boost to apartment demand. Retailers also suffered from high rates of consumers going bust