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Aging and Bankruptcy
Baby Boomers Account for Nearly Half of Bankruptcies Filed
Three years ago, a study by Administrative Office statisticians showed a gradual aging of the typical bankruptcy filer, with filers over the age of 45 accounting for a larger percentage of overall filers. Following implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the economic downturn, and the housing crisis, are bankruptcy filings still a function of age?
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Percentage of Bankruptcy Filers Over the Age of 45
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Percentage of Overall Bankruptcy Filers by Age Group
To answer that question, statistician John Golmant, who conducted the original study, and social science analyst James Woods, both of the AO’s Statistics Division, reviewed 822,590 Chapter 7 and Chapter 13 bankruptcy filings for the 12-month period ending December 31, 2007. The Chapters account for 99.9 percent of all consumer filings. Filers’ birth dates were obtained using outside data sources for a sampling of 2,100 cases.
Golmant and Woods found that the middle–aged still file the bulk of bankruptcies. The median age for bankruptcy petitioners increased from 37.7 years in 1994 to 41.4 years in 2002 to 44.9 years in 2007. Bankruptcy petitioners over the age of 45 constituted 27 percent of filers in 1994, 39 percent in 2002, and 50 percent in 2007.
That middle-age filers have come to account for an increasing percentage of overall filers means that “baby boomers”—those who attained the ages of 43 through 61 during 2007—are disproportionately represented in bankruptcy proceedings.
Several indicators show this age group to be facing financial difficulties, including an increase in the ratio of debt payments to family income for those aged 45 and above. The ratio declined for those under 45. From 2004 to 2007, the percentage share of families with a debt ratio of at least 40 percent rose fastest for those over 45. Additionally, 28 percent of all mortgage delinquencies and foreclosures were for persons 50 years and older.
Meanwhile, the net worth of the middle-aged and older has declined. The median household for persons between the ages of 45 and 54 lost 45 percent of its net worth between 2004 and 2009, and the median household for persons between the ages of 55 and 64 lost 50 percent of its net worth in the same time period.
Credit card debt may play a role as the median value of credit card debt of those aged 55 to 64 increased 9 percent between 2001 and 2004 and 50 percent between 2004 and 2007. For those aged 65 to 74, median credit card debt increased 25 percent from 2004 to 2007.
The effect of BAPCPA on the composition of filings by age is difficult to gauge, according to the authors of the study. They note that post-BAPCPA, there has been an increase in the percent of Chapter 13 filings—an option the Act promoted while also increasing restrictions on Chapter 7 filings. It is possible that, given the recent housing crisis and economic downturn, more debtors chose to file Chapter 13 in an effort to postpone foreclosure on their homes. The study showed, however, that the fastest growth in Chapter 13 filings occurred in those debtors between the ages of 55 and 64.
“Given that the proportion of Chapter 13 petitions filed by 55- to 64-year-olds increased dramatically, and given that this age group also contributed to a significant number of foreclosures, it seems plausible that the two phenomena are linked,” the study concludes.
The complete study, Aging and Bankruptcy, Revisited, was published in the September 2010 issue of the American Bankruptcy Institute Journal and can be obtained by contacting John Hartgen at 703-894-5935 or email@example.com.