Legal Issues In the News

Older Persons Filing Bankruptcy

University of Illinois College of Law's Bob Lawless

Bob Lawless of the University of Illinois College of Law University of Illinois College of Law

In a front-page story, the New York Times has reported on research with which I am involved and that documents a huge increase in bankruptcy filings from persons age 65 and over. The numbers are shocking. In a time of declining bankruptcy filings for everyone else, bankruptcy filings are going up for retirement-age filers. Persons age 65 or over now represent one out of every eight filers in the bankruptcy system as compared to one in fifty in 1991. The rate of bankruptcy filings in this group has increased three-fold during the same time. The reaction to our research has been humbling and overwhelming, and it suggests the New York Times story reflects the experiences in many American households.

The figures come from a long-running study of bankruptcy filers known as the Consumer Bankruptcy Project that now involves professors at the University of California-Irvine, the University of Idaho, Indiana University and myself here at the University of Illinois. Using the federal court databases, we randomly sample bankruptcy cases from around the country and send surveys to the persons in those cases.

It is not just the oldest persons in our data who are filing bankruptcy more often. There also has been a fairly dramatic increase for the 55-to-64 age bracket. In contrast, persons ages 18 to 44 are not showing up in bankruptcy court in the numbers they were a generation ago. No matter how one slices the data, there has been a shift – a “graying” of the U.S. bankruptcy system. Because they generally have fewer resources to tap and fewer years left to do it, the fresh start that comes from bankruptcy will be less effective for someone at or near retirement. Practitioners have told me that for their older clients bankruptcy often is about peace of mind. Bankruptcy not only stops the debt collection calls but also is about stepping up and admitting there are debts that never will be repaid.

The question I have been asked over and over is what has caused this trend. With our data alone, we cannot say for certain. We do ask people why they filed bankruptcy. A little over two-thirds of the persons over 65 agree that a reason for their bankruptcy was a medical problem that either caused a lot of debt or led to a work interruption. About three-quarters cite aggressive debt collection. But, these figures are similar to what all bankruptcy filers cite as reasons for their bankruptcy. Where the elderly stand out from other bankruptcy filers is that about one-third say a reason for their bankruptcy was helping a family member or close friend financially.

Our findings fit comfortably with a larger set of research findings about what Professor Jacob Hacker has called the “great risk shift.” Risks that were more broadly spread one or two generations ago have been put on the backs of individuals. Have a serious medical problem? You better hope that your insurance does not leave with your unmanageable co-pays and deductibles. Thinking about retirement? You better hope that the stock market has been kind to that 401(k). Indeed, with less job security than in the past and less long-term employment, people can be lucky to have the health insurance or the 401(k) at all. We have gotten to this point not because one law changed but because lots of laws and policies changed. These changes have had both intended and unintended consequences, some of which are now showing up in bankruptcy court. Reversing the trend we see in our research is not a matter of passing one new law. Rather, it is about a national conversation about broad choices of how we want our society to look and whether we have the political will to get there.