As yet another indicator of the tough economic times for American families, bankruptcy filings spiked in the month of October. According to the latest data from Automated Access to Court Electronic Records (AACER), there were 108,595 total bankruptcy petitions filed in the month of October for an average of 4,936 for each of the 22 business days during the month. October 2008 is the first time since the 2005 changes to the U.S. bankruptcy that there have been more than 100,000 bankruptcy filings in one month. (Anyone looking for more sensational but less helpful headlines can focus on the absolute number of filings in October 2008 and ignore the fact that the month had one more business day than many other months.)

Why the increase? Obviously, one factor is the tough economic climate for everyone. An important factor that is often ignored is that, in the short-term, decreases in the availability of credit actually drive up the bankruptcy filing rate. I document this phenomenon and explain it in more detail in my paper, The Paradox of Consumer Credit. Of course, in the long-run, bankruptcy filing rates rise hand-in-hand with increases in credit availability. Over the short-term, however, bankruptcy filing rates as individuals find it more difficult to borrow to stave off the day of financial reckoning. With the seizing up of the credit markets, the October bankruptcy numbers (and the smaller increases in July, August, and September as I discuss below) show this scenario has played out again.