Over the past five years, business bankruptcy filings have plunged by 63 percent in Indiana’s Northern District, which includes Fort Wayne.
Last year’s 178 filings were 23 percent fewer than the 231 business bankruptcies filed in the district in 2013. Both the one-year and five-year regional trends mirror the decrease in business bankruptcy filings nationwide.
But don’t assume it’s evidence of a robust economy picking up speed. It could signal just the opposite, one local bankruptcy attorney said.
Although booming bankruptcy rates were once touted as an indication of how crummy the economy was, the same can’t be said of the recent decline in filings.
Accurately measuring the economy’s health requires piecing together various data, experts say. Changes in gross domestic product, jobless rates, stock market levels, household income, savings rates, consumer debt ratios and trade deficits are all critical parts of the puzzle.
Experts caution against plucking out one number and weaving a warm and fuzzy story around it.
"Generally speaking, using economic data must be handled with care," said Ellen Cutter, director of IPFW’s Community Research Institute. "It can be too easy to cherry-pick data that support our assumptions or will only tell us part of the story."
A bankruptcy expert agreed.
"I don’t know that I can draw any particular conclusions (about the economy) based on bankruptcy filings dropping," said Anne Lawton, a professor at Michigan State University’s law school and resident scholar this semester with the American Bankruptcy Institute.
Several indicators point to economic growth for 2015.
GDP, the value of all goods and services produced in the U.S., is forecast to increase by about 3 percent, according to Indiana University economists. The U.S. trade deficit fell in November, PNC economists reported in January. Low interest rates and gas prices also fall into the positive column.
Scratch the surface, however, and some of the statistics lose some of their luster.
Take jobless rates. Unemployment has declined to less than 6 percent throughout northeast Indiana, which also can be taken as another good sign. Five years ago, some neighboring counties reported jobless rates topping 15 percent, according to data from the Indiana Department of Workforce Development and the Ohio Department of Job and Family Services.
But researchers have also noted increasing numbers of people dropping out of the workforce or settling for part-time work when they really need more hours.
Unemployment is one of numerous measures that can vary significantly from one area to another. Nationally, 2.93 of every 1,000 residents filed for bankruptcy in 2014, a 12 percent decline from the previous year. Indiana’s one-year decline was only slightly higher, but 4.38 of every 1,000 Hoosiers filed for bankruptcy protection.
Indiana’s per capita filing rates outpaced national rates over the last five years by 1.45 to 2.07 percentage points – a significant amount when dealing with single-digit numbers. Per capita rates for the Indiana’s Northern District weren’t available.
It’s clear, however, that some families are still struggling.
The United Way issued a report on Indiana’s working poor late last year. According to the study’s findings, 22 percent of Allen County households were living at a bare-bones survival level last year.
Parsing the numbers
So should we be celebrating a 63 percent dive in business bankruptcies?
Numerous factors influence the number of filings, Fort Wayne bankruptcy attorney Daniel Skekloff said. Among them are the number of new businesses that open and how willing banks are to make – and demand payment on – loans.
If it’s true that 8 out of 10 small businesses fail in the first 18 months, a statistic from Forbes, then fewer bankruptcies could simply be the result of fewer new businesses opening, Skekloff said. When lending standards are tighter, fewer budding entrepreneurs are able to turn their dreams into reality. Fewer, still, fail and file for bankruptcy protection.
Also, if bankers decide to give delinquent borrowers more time before insisting on overdue loan payments, the policy change could translate to fewer business borrowers being pushed into bankruptcy, he said.
Skekloff can’t point to a particular bank that has been told by federal regulators to give business borrowers more time to catch up on overdue payments. Then again, he said, that type of guidance is always hush-hush.
"These things you don’t know," he said. "You can start sounding like a conspiracy theorist here."
The local lawyer is more confident in the evidence that bankers’ changing attitudes have affected the number of consumer bankruptcies.
Tighter mortgage lending standards – including larger down payment requirements – have resulted in fewer homeowners getting over their heads in debt, Skekloff said. Lenders are also slower to foreclose on borrowers after experiencing public backlash and seeing property values plummet in neighborhoods riddled by foreclosure, he said.
The three main reasons people file for bankruptcy are lost job, medical bills and divorce, Professor Lawton said.
Skekloff is aware of only one direct correlation with bankruptcy filing rates. They decrease, he said, when consumer debt deceases.
People get into the most trouble during economic boom times, when interest rates climb and loans flow freely, Skekloff said. He’s been a bankruptcy attorney for more than 30 years. During that time, his office has been hopping when the economy is humming along and borrowers feel fearless.
Meanwhile, some factors limit bankruptcy filings, particularly the Chapter 7 version that allows filers to surrender all but a few designated assets and wipe the debt slate clean. They have to wait eight years after their case was resolved before they can file again for Chapter 7.
If someone filed for Chapter 7 and the debt was discharged in January 2010, he couldn’t file Chapter 7 again in 2014.
But the door isn’t completely closed. That same person could file a Chapter 13 case four years or more after discharging a Chapter 7 bankruptcy. The wait is four years for someone who has been granted a Chapter 13 bankruptcy and wants to file for another.
It’s unclear whether those rules have kept some consumers and businesses from filing. No one tracks the people who don’t file for bankruptcy and why.
In the past year alone, total bankruptcy filings declined by 12 percent nationwide. Business filings fell by 22 percent, according to the American Bankruptcy Institute.
"Annual total filings fell for the fifth consecutive year and dipped under 1 million for the first time since 2007," ABI Executive Director Samuel Gerdano said in a statement.
Cutter, head of IPFW’s Community Research Institute, doesn’t routinely follow bankruptcy filings, but she doesn’t dismiss them, either.
"It’s absolutely an important indicator to look at," she said.
That’s if, Cutter added, you also understand exactly what’s being measured and what’s driving any changes in the numbers.