May 2007

Aging Bankruptcy Filers: Is This a Trend?

Is there a relationship between age and filing for bankruptcy? A new study shows that the bulk of bankruptcy filings are filed by the middle-aged.

John Golmant and Tom Ulrich, statisticians in the Administrative Office’s Statistics Division, gathered data from over 13 million records, with information on Chapter 7 and Chapter 13 consumer bankruptcy filers. Random sampling selected 2,800 records with data covering 88 of the 94 districts for the years 1993 through 2002. The results of the study were presented at the 15th Federal Forecasters Conference and published in the May issue of the American Bankruptcy Institute Journal.

The study shows a gradual aging of the typical bankruptcy filer. They found that the median age for bankruptcy petitioners increased from 37.7 years in 1994 to 41.4 years in 2002. Between 1994 and 2002, older filers came to account for a larger percentage of overall filers. Petitioners over the age of 45 constituted 27 percent of filers in 1994, but 39 percent in 2002. In 1994, filers under the age of 25 accounted for 11 percent of overall filers, but in 2002 they accounted for 4 percent.

And although the average age of the general population and of the bankruptcy petitioner population are both increasing, the two groups are aging at different rates. The change in the proportion of bankruptcy petitioners by age group, says the study, is much greater.

Does age affect the type of bankruptcy filed? According to the study, it appears that Chapter 7 petitions are becoming more prevalent among older debtors, with the fastest growth in Chapter 7 petitions occurring in the groups of filers over age 55. The fastest growth in Chapter 13 petitions also occurred in the over age 55 grouping, although the 45-54 age group experienced significant growth as well.

Why are baby boomers disproportionately represented in bankruptcy proceedings? The study cites some possible factors. Several studies have pointed to the “tumultuous” economy of the 1980s and early 1990s, during the baby boomers’ peak earning years. Another study points to credit card debt, showing that credit card debt levels among Chapter 7 petitioners were lowest for debtors under the age of 25, three times that amount for debtors in their 50’s and five times that amount for debtors age 60 and older. The amount of mortgage debt carried by older home-owners also has been increasing. Health care costs seem to be major contributors to indebtedness among seniors. Recent data suggest that 14 percent of 64-years-olds are facing retirement with negative net worth.

“Of course, it remains to be seen whether these potential financial insolvencies will translate into bankruptcies within the federal court system and, moreover, whether the Chapter 7 bankruptcy will continue to be the predominant course of action whenever a debtor is faced with financial insolvency,” the study on aging and bankruptcy concludes. “The passage of BAPCPA [the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005] may have altered the entire insolvency landscape.”