Having worked since 2006 with individuals and couples going through personal bankruptcy, I know that the vast majority of them are doing their best to fix their finances and, given the choice, would much prefer to pay off their debts on their own. They are as a whole not slackers nor freeloaders. I know that bankruptcy is a difficult and frustrating process that individuals and couples try to avoid. I also know it exists (in its current basic form since 1898) for good reasons. Nobody wants to return to the mid-1800s when debtors prisons were not yet against federal law.
# of Bankruptcy Cases Filed
In the twelve month period ending March 31, 2013, there were 1,132,772 non-business (i.e. personal) bankruptcies filed in the US. To be clear, this figure does not mean that 1.132 million Americans filed for personal bankruptcy during that period. Actually, according to our experience, every personal bankruptcy filing represents 1.33 individuals involved. That’s because many spouses (and sometimes even a parent and child) file together.
What this means is that approximately 1.5 Million American adults filed a personal bankruptcy between April 1, 2012 and March 31, 2013. In day-to-day terms, that means that for every 155 adults that you meet, pass by, or see, one of them has likely filed for bankruptcy in the past 12 months. If we include all personal bankruptcies filed since April 2009, that figure changes to one in about every 30 individuals.
My use of Public Access to Court Electronic Records in working with filers has allowed me to determine that about 20% of all non-business bankruptcy filers have filed before. Between 1% and 2% have had at least two bankruptcy petitions discharged before.
Types of Debts
Based upon a sampling of over 3,000 survey responses, individuals and couples going through our bankruptcy classes are far more likely to have credit card debt (79%) than the next most common type of debt (medical at 54%). Vehicle loans are third at 46%, followed by first Mortgage debt at 42% (59% if home equity loans are included). Just 15% of our bankruptcy students reported having student loans (a not dischargeable in bankruptcy), followed by 12% having payday loans.
Amount of Non-Mortgage Debt In Filings
According to our surveys, 4% have no non-mortgage debt, 8% have less than $10,000 of such debt, 16% have between $10,000 and $20,000, 40% have between $20,000 and $50,000, and a full 32% have more than $50,000 of non-mortgage debt.
Reasons for Filing Bankruptcy
Now that we have an idea of how many people are filing for bankruptcy, most of us would like to know why? It’s easy to simply respond, “It’s the economy, stupid!” Well, given the fact that bankruptcies actually peaked in 2004 BEFORE the Great Recession and that Congress made major changes to bankruptcy law in 2005, the figures tend to remain fairly mute as to their explainable patterns.
However, we survey the individuals coming through our bankruptcy classes, and here’s what we’ve found: about 41% of bankruptcy filers since 2006 attribute their bankruptcy to job loss, another 19% to excessive medical bills (which, I hypothesize, accounts for the majority to those who’ve filed multiple times), and 7% to the consequences of a recent divorce. Still, 22% (more than 1 in 5) acknowledge that they’re bankrupt due to overspending and poor credit card management.
With such figures, and in spite of the decrease in filings over the past few years, bankruptcy remains a devastating event in the lives of a substantial portion of our population. For those of us who have never filed for bankruptcy, I hope we’ll withhold judgment of those who have, opting instead to better understand their situation. That’s not to say that we’re not justified in being upset when we set a small fraction of bankruptcy filers exhibiting poor financial judgment after having their cases discharged by the courts.
For those who have filed before, though, I wish you all the best as you try to recover and rebuild your financial lives.
Have a great day!