Sunday, December 26, 2004
Bankruptcy: Some Studies
The US Bankruptcy court compiles statistics on bankruptcy filings. The general thrust of the data is by chapter (type), by district (location), and by legal entity (business and non-business).
This blog's general focus is on the individual. Therefore, the statistics of interest are the 'non-business' (individual) filings. For the period between 1990-2003, non-business bankruptcies have increased. In 1990, there were 718,000 filings. By 2003, there were 1.265 million filings.
During this timespan, Chapter 7 liquidations have remained approximately 70% of the total filings. Here is the link to the webpage and the link supporting the above information.
There is no disputing the notion that bankruptices have increased during this period. There have been year over year declines in absolute filings, but by and large, the trend is upwards.
While it is interesting to look at the gross numbers, the devil is usually in the details. This is where the analyses of the US Bankruptcy Trustee is useful. This section of the Trustee website provides links to various studies and reports that shed some light into the numbers.
Here, we can search for reports that analyze the consumer bankruptcy filings. What is lacking, however, is the general economic climate in which to put the data into a larger context. Nonetheless, these studies are very useful.
The first study that jumps out is titled Credit Card Debt in Chapter 7 Cases. I have noted a couple of salient points from the study:
Another article titled Exploring the (Complex) Causes of Bankruptcy, attempts to reconcile various studies' conclusions on the reasons that individuals file for bankruptcy. The overall thrust of this article was to provide insights in the 'why' of filing to develop better policies in the bankruptcy arena.
The most striking element of this article is a graph that shows the percent increase/decrease in bankruptcy filings corresponds to the percent increase in consumer debt (with a lag factor built into the filings.) Again, however, the correlation is there. However, the reasons for filing are not.
Another 'study of studies' on consumer bankruptcy, Personal Bankruptcy: A Literature Review (written by a Congressional Budget Office analyst), explores this issue as well. My general thoughts on this article are that (again) it is difficult to pin down exact causes for bankruptcy filings, and while many studies have attempted to answer this question, the underlying data captured in bankruptcy proceedings and varying bankruptcy laws accross the states makes this task more difficult.
Was this review useful? It's hard to say. From a big picture perspective, it is difficult to determine why people file for bankruptcy, although there is a correlation between debt growth and bankruptcy filings 1-2 years later. Unsecured debt, specifically credit cards, is also a factor in consumer bankruptcy.
Did I cherry pick my observations? Perhaps. However, I really wasn't sure what I was going for. I personally am biased against credit cards and also believe that credit cards used improperly can lead one to financial ruin.
It also stands to reason that the more debt one carries, especially high interest debt relative to income, the more strained the borrower becomes. Further, credit card debt is debt that can grow (negatively amortize if you will). By only paying the minimum each month, the balance will increase over time.
In summary, it is difficult to explain (in general terms) the causes for increases in bankruptcy filings in a given timeframe. Over time, the change in debt levels will cause bankruptcy filings to increase 1-2 years down the road. Credit cards are significant factors in consumer bankrupty filings.
This blog's general focus is on the individual. Therefore, the statistics of interest are the 'non-business' (individual) filings. For the period between 1990-2003, non-business bankruptcies have increased. In 1990, there were 718,000 filings. By 2003, there were 1.265 million filings.
During this timespan, Chapter 7 liquidations have remained approximately 70% of the total filings. Here is the link to the webpage and the link supporting the above information.
There is no disputing the notion that bankruptices have increased during this period. There have been year over year declines in absolute filings, but by and large, the trend is upwards.
While it is interesting to look at the gross numbers, the devil is usually in the details. This is where the analyses of the US Bankruptcy Trustee is useful. This section of the Trustee website provides links to various studies and reports that shed some light into the numbers.
Here, we can search for reports that analyze the consumer bankruptcy filings. What is lacking, however, is the general economic climate in which to put the data into a larger context. Nonetheless, these studies are very useful.
The first study that jumps out is titled Credit Card Debt in Chapter 7 Cases. I have noted a couple of salient points from the study:
- Credit card debt is a major issue in a substantial percentage of consumer bankruptcies.
- The average credit card debt reported on Schedule F for our cases was $17,738.
- The median (middle case) credit card debt level was $11,038.
- About 1.1 million no-asset non-business chapter 7 cases will be closed nationwide this year, so we project that these cases will result in the discharge of nearly $20 billion in credit card debt.
- Credit card debt generally increases with the income of debtors.
- In general credit card debt is higher for male debtors than female debtors, and even higher for joint filers.
Another article titled Exploring the (Complex) Causes of Bankruptcy, attempts to reconcile various studies' conclusions on the reasons that individuals file for bankruptcy. The overall thrust of this article was to provide insights in the 'why' of filing to develop better policies in the bankruptcy arena.
The most striking element of this article is a graph that shows the percent increase/decrease in bankruptcy filings corresponds to the percent increase in consumer debt (with a lag factor built into the filings.) Again, however, the correlation is there. However, the reasons for filing are not.
Another 'study of studies' on consumer bankruptcy, Personal Bankruptcy: A Literature Review (written by a Congressional Budget Office analyst), explores this issue as well. My general thoughts on this article are that (again) it is difficult to pin down exact causes for bankruptcy filings, and while many studies have attempted to answer this question, the underlying data captured in bankruptcy proceedings and varying bankruptcy laws accross the states makes this task more difficult.
Was this review useful? It's hard to say. From a big picture perspective, it is difficult to determine why people file for bankruptcy, although there is a correlation between debt growth and bankruptcy filings 1-2 years later. Unsecured debt, specifically credit cards, is also a factor in consumer bankruptcy.
Did I cherry pick my observations? Perhaps. However, I really wasn't sure what I was going for. I personally am biased against credit cards and also believe that credit cards used improperly can lead one to financial ruin.
It also stands to reason that the more debt one carries, especially high interest debt relative to income, the more strained the borrower becomes. Further, credit card debt is debt that can grow (negatively amortize if you will). By only paying the minimum each month, the balance will increase over time.
In summary, it is difficult to explain (in general terms) the causes for increases in bankruptcy filings in a given timeframe. Over time, the change in debt levels will cause bankruptcy filings to increase 1-2 years down the road. Credit cards are significant factors in consumer bankrupty filings.
