The contraction of bankruptcy filings and diversity in the field of bankruptcy law

Bankruptcy is a countercyclical practice area. This generally means that, during a period of economic growth, bankruptcies trend downward. Conversely, during an economic contraction, bankruptcies trend upward.

The statistics since the Great Recession are illustrative. In 2007, there were a total of 850,912 bankruptcy filings nationwide, including 72,615 in California. (American Bankruptcy Institute). In 2008, filings jumped to 1,117,771 nationwide, with 133,223 in California. In 2010, the number of filings peaked at 1,593,081, with 260,210 bankruptcy filings in California. The number of bankruptcy filings has decreased nationwide almost every year since 2010, and has decreased consistently in California every year since 2010, with 2021 bankruptcy filings nationwide at 413,616 and 40,972 in California. Thus, the current volume of bankruptcy filings is at roughly half of where it was in 2007, the year before the Great Recession.

Bankruptcies are down roughly 75% nationwide and roughly 85% statewide from the 2010 peak. These statistics don't tell the whole economic story because they miss, among other nuances, whether the cases were filed by businesses or individuals, and whether they involved a reorganization or liquidation. Indeed, the vast majority of the filings are individual filings seeking liquidation. Business reorganization cases are down substantially, but are not as far off from historic norms as the individual cases. However, they paint a clear picture of a bankruptcy practice in California and the United States that has experienced a long period of contraction.

During the same period, the rate of new attorneys admitted to the State Bar of California has remained relatively constant. In 2007, 6,749 new attorneys were admitted; in 2008 the number rose to 7,132; in 2010 it dipped to 6,473 new attorneys, with 5,146 in 2019. There were 2,661 new admittees in 2020 and 10,001 in 2021 due to Covid-19 interruptions (State Bar of California, attorney demographics). Yet, the average between those two years is consistent with the trends of the recent past.

During roughly the same period, the state of diversity in the legal profession is reported to be gradually improving. In a 2019 report, the State Bar showed an increase in the number of new female and nonwhite admittees. The number of new attorneys identifying as female in 2019 was above 50% of the total, while it was in the mid-40s during the aughts. The number of new attorneys identifying as nonwhite was below 40% in the aughts, and in the upper 40s in 2019. The 2019 report shows that there is still room for improvement, as California's population remains generally more diverse than its attorney population. Likewise, men were still around 57% of the lawyer population in 2019 even though women make up 50% of the population. Law schools show similar trends. According to the ABA, in 2011, 25% of law students were students of color compared with 32% in 2021. Thus, the observable trend has been one of gradually increasing diversity in the legal profession.

In recent years, both the American Bankruptcy Institute and the federal judiciary have been working proactively to address and ameliorate the lack of diversity in the bankruptcy bench and bar. (E.g., M. Chutchian, Reuters,"Q&A: Levene Neale's Eve Karasik aims to boost diversity in bankruptcy practice" (June 14, 2021). Taken together, the above data sets suggest an explanation for why the bankruptcy bar may have been particularly challenged in the area of diversity over the last decade.

The long period of contraction in bankruptcy filings since 2010, combined with an ongoing trend of large California companies filing for bankruptcy protection in distant "magnet" courts (e.g., Delaware, New York, Houston) has resulted in a concomitant shrinkage of the bankruptcy law employment market in California. During this period, a number of premier Los Angeles bankruptcy boutiques have closed their doors, while large law firms have employed relatively few bankruptcy attorneys in their California offices. As a member of the Los Angeles bankruptcy bar, I am concerned about both the decline of career opportunities and the lack of diversity in our professional community, and I view these dual concerns as closely related.

The Los Angeles bankruptcy professional community has taken note and has been working to catch up with the broader legal community, and to be a leader in promoting diversity in the bar. Last year, the Los Angeles Bankruptcy Forum, the leading bankruptcy professional organization in our region, started its Diversity, Equity & Inclusion Committee. The LABF's DE&I Committee has conducted career presentations at the major law schools in the Central District to encourage diverse law students to take interest in bankruptcy, whether by taking bankruptcy law courses, externing for bankruptcy judges, or a summer job with a bankruptcy law firm or practice group. The DE&I Committee also recently established the Honorable Richard M. Neiter Summer Bankruptcy Fellowship & Externship Fund. The fellowship was awarded to four diverse law students to support otherwise unpaid summer externships with bankruptcy judges in the Central District. Such externships are among the leading pathways to careers as bankruptcy attorneys, as many bankruptcy attorneys, including me, can attest.

As the demographic and economic trends inevitably shift and evolve, there will be opportunities for growth in the bankruptcy field. We have some catching up to do in the area of diversity, and I believe that we are game for the task. I would encourage others in the bankruptcy community to join the efforts led by our bench and bar organizations to promote diversity in the practice.

Zev Shechtman is a partner at Danning, Gill, Israel & Krasnoff, LLP. He served as president of the Los Angeles Bankruptcy Forum in 2021- 2022, and was one of the founders of its Diversity, Equity & Inclusion Committee.