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29 Aug 2013

What Are The Patterns of Bankruptcy Filers?

As a Colorado bankruptcy attorney, I am often asked if bankruptcy rates are going up or down, and if the demographic makeup of bankruptcy filers has changed. Over the past few years, as the U.S. has gradually emerged from the recession, the number of people filing for bankruptcy has decreased, but there are a few trends that have little to do with the economy.

Many people who file for bankruptcy are lower-income individuals who simply cannot afford to pay for unexpected major expenses. A job loss or a major illness might be just enough to push them into financial ruin. While peaks in petitions are a sign of economic downturn, filings will also increase in states with fewer consumer-friendly laws

2005: A record year for personal bankruptcy

Among the patterns revealed by recent research, the number of bankruptcy filings has steadily risen over the past century, particularly within the 25 year period between 1980 and 2005. In fact, bankruptcy filings hit an all-time high in 2005 when a record of two million cases was filed. In that year, an astounding one out of every 55 households filed for bankruptcy. Interestingly, in 2006, bankruptcy filings dipped to the lowest point in twenty years.

Consumers outpacing businesses

In 1980, businesses accounted for 13% of all bankruptcy filings, but today they only account for 3 percent. The vast majority of bankruptcies are now filed by consumers. But these statistics are by no means consistent across the country. The number of bankruptcies varies widely from state to state, partially because the policies surrounding bankruptcy differ in each state, but also because of the number of people who live there.

States with highest number of bankruptcies

As of 2011 the state with the most bankruptcy filings was California, with more than 240,000. The number was so large it accounted for 17% of all the nation's bankruptcies that year. The five states with the highest number of petitions in 2011 were responsible for 38% of all the nation's filings that year.

These are the top five states and their number of declared bankruptcies in 2011:

  • California (240,151)
  • Florida (94,815)
  • Georgia (73,852)
  • Illinois (73,210)
  • Ohio (58,754)

Why are people filing for bankruptcy?

A study from 2005 revealed that 46 percent of bankruptcies were related to medical expenses from a serious illness not covered by insurance and the resulting loss of income. However, shortly after this study was completed, drastic changes in the economy caused bankruptcy from unemployment, underemployment and credit card debt.

Demographic changes in bankruptcy filers

Over the past few decades, researches have noticed some key differentiators among the "typical bankruptcy petitioner." For example, the average filer is older and married, has a high school education with no college, and earns less than $30,000 per year.

At the time of bankruptcy, the age of the petitioner seems to be getting older. Since the early 90's more senior citizens are declaring bankruptcy while fewer filers are under the age of 25. In fact, since 2007 those under 25 made up less than 2% of all filers. During that same period of time, the percentage of older petitioners more than doubled, now accounting for nearly 20% of all filers.

As a result of these fluctuations, the median age of a bankruptcy-seeker has increased from 38 to 45 years of age.

What about repeat filers?

Recent data suggests that 8 percent of those who seek bankruptcy protection have filed at least once before. Repeat filers are now responsible for 16% of all bankruptcy cases.
Some experts point to these repeat filings as proof that bankruptcy laws are exploited, but new laws have been enacted to curb abuse of the bankruptcy system. However, these recent policy changes have little effect on who files for bankruptcy and when.

Gender and marital status

Contrary to what one may believe, the gender distribution of bankruptcy filers is roughly equal parts men and women, and the gap seems to be shrinking. As of 2010, more than 64% of all bankruptcies were filed by married individuals, with only 17 percent of the debtors single, 15 percent divorced and 3% widowed.

Level of education

In 2010, about 20% of all bankruptcies were filed by people with a bachelor's degree or higher, while 36% have a high school education level and 29% have some college education.

Income Level

A study from 2011 found that 60% of bankruptcy seekers earned less than $30,000 per year, a decrease from 66% four years earlier. During the same period, a higher number of filers reported earning more than $60,000 per year.

While it's true that there is a "typical profile" for someone who is likely to file for bankruptcy, certain life circumstances increase the possibility. No one is immune to having serious financial trouble. If you find yourself struggling financially, it may be time to contact a bankruptcy law professional who can help you understand your option.

Stephen H. Swift

Managing Attorney
Law Office of Stephen H. Swift, P.C.

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