The Landscape of Personal Bankruptcy Filings in the U.S.: Key Reasons and Trends

Bankruptcy filings in the United States have been a significant concern for policymakers and economists, reflecting the financial challenges faced by many households. A comprehensive analysis of recent data reveals a concerning trend in the incidence of personal bankruptcy filings, which have surged over the years.

Overview of Recent Filings

According to USCourts.gov, for the 12-month period ending September 30, 2019, the total number of bankruptcy filings was as follows:

Chapter 7: 482,831 filings Chapter 13: 286,027 filings Chapter 11: 7,105 filings Other Chapters: 711 filings

Unfortunately, this data does not appear to differentiate between business and non-business filings. Nonetheless, personal bankruptcies represent the vast majority of filings, underscoring the profound impact personal financial challenges have on households.

Trends in Personal Bankruptcy Filings

The American Bankruptcy Institute reports that personal bankruptcies have risen significantly over the past few decades. In 2005, there were a total of 2,039,214 personal bankruptcies, up from 412,510 in 1985. The percentage of households that filed for bankruptcy increased from 0.3% to 1.8%, and the ratio of consumer filings to total bankruptcy filings climbed from 82.72% to 98.11%.

Top Reasons for Bankruptcy Filings

The causes leading to bankruptcy filings are multifaceted. Researchers such as Zhu (2008) and others, including Himmelstein, et al. (2005) and Jacoby, et al. (2001), have highlighted that the majority of filings are triggered by adverse events such as divorce, medical conditions, and layoffs. A notable finding from the study by Zhu (2008) is that about half of the filing households cited medical conditions as the cause for bankruptcy.

Medical Conditions: The Primary Driver

A significant body of research supports the notion that medical conditions play a major role in personal bankruptcy filings. Domowitz and Sartain (1998) found that medical conditions and credit card debts were the two most important factors contributing to bankruptcy filings. A Harvard Medical School study, as well as a Health Affairs article, puts the number of bankruptcies due to medical causes at approximately 50%. Similar findings are echoed by the Congressional Budget Office. They highlight that a significant portion of personal bankruptcies can be attributed to large medical bills following a serious illness or accident.

Economic and Personal Factors

According to the Congressional Budget Office, various factors contribute to personal bankruptcy, including:

Large medical bills Divorce Loss of income due to unemployment or a drop in overtime hours Poor debt management

The studies generally do not examine the specific factors that might motivate a person to file for bankruptcy, but rather focus on the financial impact and the economic hardships that drive these filings.

Additional Influencing Factors

In addition to medical and economic factors, another significant driver of bankruptcy filings is credit card debt. According to a California government site, about half of all personal bankruptcies in the U.S. are due to medical bills, an aligning figure with the studies mentioned above.

Concluding Thoughts

The landscape of personal bankruptcy filings in the U.S. reflects the growing financial instability faced by many households. Medical conditions appear to be one of the most significant drivers of these filings, with credit card debts being another major factor. Understanding these trends can help policymakers, financial advisors, and individuals take preventive measures to mitigate financial distress.

Keywords: personal bankruptcy, bankruptcy filings, medical bills