Felix Salmon

This chart comes from the official news release on US bankruptcy filings in 2010:

There’s no financial crisis, in this chart, and no sign of any let-up in the rate of increase of bankruptcies. That’s consistent with what the news release says:

Bankruptcy filings in the federal courts rose 8 percent in calendar year 2010, according to data released today by the Administrative Office of the U.S. Courts. Total filings remain at a five-year high.

But look a bit more closely and you see something very odd. Check out the x-axis: there’s a column every three months from December 2006 through December 2009. And then there’s a sudden jump to December 2010: three bars have been left out.

What’s more, the chart starts immediately after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. The act caused a huge spike in bankruptcy filings before the Act went into law, and therefore an artificial drop afterwards — as a result, we have no indication of what’s remotely normal when it comes to these figures.

So let’s have a look at the same chart, presented a bit more honestly:

What we have here is the rate of filings not only slowing down but even falling a little in the final period, from 1.595 million filings to 1.593 million. And clearly we seem to be topping out — there’s much less of a sense, here, that there’s no end in sight to the growth in bankruptcy filings.

On top of that, there’s a lot of smoothing going on here due to the use of overlapping 12-month periods. If you look at the raw quarterly data, you get something more like this:

Here, bankruptcy filings peaked at 422,000 in the second quarter of 2010, and have subsequently fallen by more than 12% to 370,000 in the final quarter. Far from rising, as the official chart suggests, the actual number of bankruptcy filings in the fourth quarter of 2010 was lower than it was in the fourth quarter of 2009.

What’s more, in both of my charts it’s clear that the number of filings is more or less “back to normal” after the artificial interruption of BAPCPA. The act was meant to decrease the rate of filings; it doesn’t seem to have worked very well in that regard, although admittedly we’re still painfully emerging from a particularly nasty recession. But in any case adding the historical data does make the official chart much less scary.

None of this is remotely obvious from the press release, which unhelpfully provides the underlying data in an eight-column grid with the numbers running from left to right and bottom to top. If I didn’t know any better, I would say that someone at the press office was trying to make the bankruptcy situation look worse than it actually is. But I have to say I have no idea why they’d do that.

Update: Apologies, my charts somehow disappeared from this post when it was first posted. They should be there now!

Update 2: A quick show of hands, if anybody’s still reading this. My charts here are clever embedded things where you can mouse over the columns and see the actual figures. On the other hand, they don’t seem to show up in RSS feeds. So, should I continue with smart interactive charts, or should I go back to dumb pictures? Any opinions?