Most cases of bankruptcy aren’t caused by reckless spending but by financial hardship, and many are lower-income individuals who simply can’t afford to deal with unexpected major expenses such as job loss or medical bills.
Peaks in bankruptcy petitions typically signify economic downturn; and states with fewer consumer-friendly laws typically see the most filings. Consumers could consider debt consolidation options – Debt Management Plans, Debt Consolidation Loans and Debt Settlement – as an option to avoid filing for bankruptcy.
These are among the patterns revealed by recent U.S. bankruptcy filings.
Number of Bankruptcy Filings
The number of bankruptcy filings in the United States has steadily increased over the last century, and especially so from 1980 to 2005.
Bankruptcy filings hit an all-time high in 2005, when more than 2 million cases were started. In that year, one out of every 55 households filed for bankruptcy.
The following year, bankruptcy filings dipped to about 600,000, the lowest point in 20 years.
The vast majority of bankruptcies are now filed by consumers and not by businesses. In 1980, businesses accounted for 13 percent of bankruptcies. Today, they account for about 3 percent.
States with High Numbers of Bankruptcies
The number of annual bankruptcies varies widely by state. This is in part because bankruptcy policies are different in each state – and because some states are more populous than others.
Additionally, studies have found that bankruptcy occurs more often in states with more lenient wage-garnishment laws.
The state with the most bankruptcies in 2011 was California, with more than 240,000. This accounted for 17 percent of all bankruptcies nationwide. At the other end of the spectrum, Alaska had fewer than 1,000 bankruptcies in the same year.
The five states with the most bankruptcy petitions in 2011 accounted for a disproportionate 38 percent of the year’s filings nationwide.
These states and the number of bankruptcies declared in 2011 are as follows:
Causes for Bankruptcy
According to a study published in early 2005, 46 percent of bankruptcies were related to outstanding medical conditions. The major cited reasons in this category included injury or illness, medical expenses not covered by insurance or losing at least two weeks’ worth of work because of illness.
But economic changes shortly after the study’s completion have led to drastic changes in the reasons cited for bankruptcy. Since 2005, commonly reported causes of bankruptcy include reduced income, job loss, credit debt, illness/injury, unexpected expenses and preparing for divorce.
Changing Demographics of Bankruptcy Filers
Over the past several years, researchers have noted key changes in the typical bankruptcy petitioner. Today, the average filer is older and married, has a high school education and makes less than $30,000 a year.
Age at Bankruptcy
Since the early 1990s, bankruptcy has been used with increasing frequency by older individuals. While more senior citizens are declaring bankruptcy, a decreasing percentage of filers are younger than 25.
In 2007, those younger than 25 made up less than 2 percent of all filers, down from 11 percent in 1994. In the same time period, the percentage of filers age 55 or older more than doubled; those filers now account for about 20 percent of all bankruptcy petitioners.
These fluctuations caused the median age of bankruptcy-seekers to increase from 38 to 45 years old.
Recent studies have found that 8 percent of those who file for bankruptcy have filed at least once before. These repeat filers are responsible for 16 percent of all bankruptcy cases.
Some experts believe that bankruptcy laws are exploited, pointing to repeat filings as proof.
Though the government has enacted policies to curb abuse of the bankruptcy system, these new policies have had little to no effect on who declares bankruptcy and when.
Gender and Marital Status
Roughly equal numbers of men and women file bankruptcy, with a ratio of 48-to-52. Over the last few years, the gap has been shrinking.
Married individuals are making up an increasing portion of bankruptcies – more than 64 percent in 2010. That number includes married couples filing jointly.
In addition, 17 percent of debtors are single, 15 percent are divorced and 3 percent are widowed.
About 20 percent of 2010 bankruptcy filers held a bachelor’s degree or higher, up from 16 percent four years earlier.
About 36 percent of filers have a high school education level, while another 29 percent have some college education.
Authors of a 2011 bankruptcy study suggested that those with some college education are at the highest risk of declaring bankruptcy because they have the financial burden of student loans but don’t experience the higher salaries associated with college degrees.
The 2011 study also found that 60 percent of bankruptcy filers have salaries of less than $30,000. This reflected a decrease from about 66 percent four years earlier.
Over the same period, an increasing percentage of filers reported making more than $60,000 annually. This demographic grew from comprising 5.5 percent to 9.2 percent.
Although there is a typical profile of someone in bankruptcy and certain life factors that make bankruptcy more likely, no one is immune to severe financial troubles. If you find yourself struggling financially, consider debt settlement and debt consolidation before turning to bankruptcy.
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- American Bankruptcy Institute (2012). Annual Business and Non-business Filings by Year (1980-2011). Retrieved from http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&CONTENTID=65139&TEMPLATE=/CM/ContentDisplay.cfm
- American Bankruptcy Institute (2012). Annual Business and Non-business Filings by State (2007-11). Retrieved from http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=65164
- FactCheck.org (2008). Health Care Bill Bankruptcies. Retrieved from http://www.factcheck.org/2008/12/health-care-bill-bankruptcies/
- United States Courts (2010). Aging and Bankruptcy: Baby Boomers Account for Nearly Half of Bankruptcies Filed. Retrieved from http://www.uscourts.gov/news/TheThirdBranch/10-11-01/Aging_and_Bankruptcy.aspx
- American Bankruptcy Institute (2010). Growth of Older Americans Filing for Bankruptcy Outpaces Rest of Population, According to Study in Latest ABI Journal. Retrieved from http://www.abiworld.org/AM/Template.cfm?Section=Home&CONTENTID=61662&TEMPLATE=/CM/ContentDisplay.cfm
- Golmant, H. & Ulrich, T. (2006). Bankruptcy Repeat Filings. Retrieved from http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/abilr14&div=11&id=&page=
- Miller, M.M. & Miller, L. (2008). Repeat Filers Under the BAPCPA: A Legal and Economic Analysis. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1983377
- Linfield, L.E. (2011). 2010 Annual Consumer Bankruptcy Demographics Report: A Five Year Perspective of the American Debtor. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1925006