Bankruptcy can happen to anyone for almost any reason. While there is still a significant stigma around bankruptcy, as professionals, we know that most bankruptcy isn’t caused by reckless, irresponsible spending, but more often by unexpected illness, job loss, or car accident. Debt.org and UScourts.gov shed some light on the most significant bankruptcy statistics in the United States.
- Medical bills tend to be the biggest cause of U.S. bankruptcies; between out-of-pocket costs and job loss associated with being unable to work due to illness, some studies estimate that over 50 percent of bankruptcies can be attributed to medical issues.
- Other common causes of bankruptcy include reduced income or job loss, credit card debt, student loan payments, divorce, and emergency expenses.
- Demographically, most bankruptcies are filed by males (over 50 percent), who are married (over 60 percent) and earning less than $30,000 annually (near 60 percent). The average age of filers is between 38 and 45 years old. Twenty percent of those filing bankruptcy today are over 55 years old, but the number of bankruptcy filers under 30 has been steadily decreasing since the 1990s.
- Some people file for bankruptcy more than once; close to 16 percent of all bankruptcy filings are repeat filings, according to some research.
- Throughout the United States, the average bankruptcy was, as of 2016, 226 filings per 100,000 residents. The 10 states with the highest rates of bankruptcy include Tennessee, Alabama, Georgia, Illinois, Utah, Indiana, Mississippi, Kentucky, Arkansas, and Ohio. Alaska has one of the lowest bankruptcy filing rates.
- During the recession of 2007 – 2009, bankruptcy filings reached an all-time high in 2010. Since then both Chapter 7 and Chapter 13 filings have generally decreased.
- From 2005 to, 2017, about 12.8 million consumer bankruptcy petitions were filed in the federal courts. Of those, 68 percent were filed under Chapter 7, and 4.1 million and 32 percent were filed under Chapter 13. Nonbusiness filings – meaning filings not made by businesses and instead related to consumer debt – made up of 97 percent of all Chapter 7 bankruptcies and 99 percent of all Chapter 13 bankruptcies.
- One of the most recent and significant changes to bankruptcy law was in 2005 when the eligibility and means test was introduced. This test was meant to assess if filers have the disposable income available to make payments towards debt (meaning they would only be eligible for Chapter 13 bankruptcy).
- Chapter 7 and Chapter 13 filings are the most common and well-known types of bankruptcy, but other kinds exist, all related to how businesses or entities can file for bankruptcy: Chapter 12 is available to only fisherman and farmers, Chapter 11 allows businesses to restructure and reorganize in order to pay off debt, and similar to Chapter 11, Chapter 9 is available for municipalities, such as cities, towns, villages, counties, taxing districts, municipal utilities, and school districts to restructure and pay down debts.
- Most consumers who file for bankruptcy are better off – including financial stability, progress towards rebuilding credit, and a full-time job – 5 to 10 years after filing than they were when they filed.
- Bankruptcy rules can vary by state, so it’s important to always consult with a law professional.
- Some people believe they have to file for bankruptcy but end up choosing another debt solution, such as credit counseling, credit consolidation, or loan refinancing or modification.
- Celebrities who have filed or come extremely close to filing for bankruptcy and gone on to successful endeavors include Larry King, Henry Ford, Will Smith, Mike Tyson, George Foreman, Walt Disney, Burt Reynolds, and others.
These stats make it easy to see that bankruptcies occur for a number of reasons. It’s a complicated process that can be triggered by a complicated set of causes. Going through bankruptcy can be stressful, so working with professional legal representation is crucial. After a successful bankruptcy, you can expect:
- Reduced or discharged payments
- A note on your credit report for up to 10 years
- An absence of credit and bill collectors
- Increased financial knowledge
- A better, more manageable budget
- Clear financial goals
- More certainty with less stress
- An ability to stay on top of bills and even begin to save again
Bankruptcy might be difficult, but it doesn’t have to be impossible. You have options and we can help. If you’re in the middle of a financial crisis, it’s important to know the facts. Filing for bankruptcy might be a solution that helps get your life back on track. We’ve successfully handled bankruptcies for just about every reason, and while we specialize in bankruptcy, we make recommendations based on your personal experiences and situation. Get in touch with us today for your free consultation so we can help you start working on options that work for you. Our expertise can help guide you toward the financial future you deserve.