Oklahoma Bankruptcies – Silver Lining, but it may keep raining

From the storm clouds of rising bankruptcies, Oklahoma recently had a silver lining. Last week, we read about the positive news that bankruptcy filings in our state fell below the national average. In 2009, there were 3.85 nonbusiness bankruptcy filings in Oklahoma per 1,000 people, compared to 4.73 for the US as a whole, according to US Justice Department figures. And this really is good news. Oklahoma has performed better through this recession than most other states and we have confidence that our state can also perform better coming out of this recession.

Oklahoma is fortunate to have lower unemployment at just under 7%, compared to the 9.6% national average and less debt than most states. We also have strong public and private initiatives working hard to drive growth and economic development.

What we need to consider, however, when discussing bankruptcies, is whether we are performing well, or just well compared to the poor performance of the rest. For the purpose of this blog, we are going to focus on the Eastern District of Oklahoma. Year-to-date in the Eastern District, there have been 1,612 bankruptcy filings, compared to 1,529 for the same period a year ago. Focusing on monthly filings, 2010 has been erratic: Jan- 100, Feb-167, Mar-272, Apr-243, May-201, Jun-184, Jul-230, Aug-215. If we were to perform well for the rest of this year, we would like to see consistent filings coming in under 175 per month. That may signal a reversal of the current negative trend.

However, if history repeats itself coming out of a recession, a drop in bankruptcy filings doesn’t look to be likely. Historical data from the American Bankruptcy Institute shows that bankruptcy filings have continued to worsen for 3 to 5 years out of previous recessions. This time around that could mean bankruptcy filings continue to increase through 2011 and remain high even as far ahead as 2014.

Whether the speculation of a double dip becomes reality or not, there are still many individuals and businesses that have been stretched so far by the depth and severity of this recession, that they are only holding on by a thread. Most don’t want to declare bankruptcy and will do everything they can to keep afloat until a recovery occurs. Unfortunately, even stagnant economic conditions could cause an increase in filings as people simply run out of time, flexibility and runway with their creditors and have no real alternative, but to declare bankruptcy.

As a result, it’s not unreasonable to imagine that 2011 bankruptcy filings could be higher than 2010. While compared to the rest of the US, that may be comparatively good, we want our state to perform well in real terms, not just well compared to the rest. At ClearRidge, we’ll be continuing to do whatever we can to support midsized Oklahoma companies and help them avoid bankruptcy.