Overall consumer bankruptcies continue decline
But new study shows spike in filings among college educated, higher incomes; another report shows poverty at record levels, affecting more than 46 million in U.S.
ABI: year-to-year bankruptcies down 11 per cent
On Sept. 2, the American Bankruptcy Institute (ABI) sent out a press release saying the year-to-year rate of consumer bankruptcies was 11 per cent lower nationwide in August as compared to August 2010. However, more recent reports are discussing surprising rises of consumer bankruptcies in certain groups--and poverty in the U.S. is higher than since such records began being kept in 1993.
According to research "from the National Bankruptcy Research Center (NBKRC)," the ABI PR said, "The data showed that the overall consumer filing total for August declined to 113,432, down from the 127,028 consumer filings recorded in August 2010. Each month of 2011 has recorded fewer bankruptcies than last year."
Change from July to August? Not much
Unfortunately, the change from July to August was small; further, the bulk of personal bankruptcies continue to be filed as Chapter 7 petitions--that's significant because the so-called Bankruptcy Reform Act driven by credit-card companies and their associated banks in 2005 (BAPCPA) was designed to steer more bankruptcy filings into Chapter 13, away from Chapter 7.
Again from ABI PR: "The August 2011 filings also represented a less than a 1 percent decrease from the July 2011 consumer bankruptcy total of 113,470 filings. The percentage of chapter 13 filings for August was 30 percent, a one percent increase from July."
'Even the Educated go Bankrupt'
A graph at the Washington Post illustrates the next point; it's called "Even the Educated go Bankrupt." The graph is a companion illustration to this Sept. 12 Washington Post story, which reports, "College graduates are the fastest-growing group of consumers who have filed for bankruptcy protection in the past five years, according to a new study by a financial nonprofit, which underscores the broad reach of the Great Recession.
Similar increases found among holders of bachelor's, 2-year associates' and graduate degrees
"The survey by the Institute for Financial Literacy, slated for release Tuesday, found that the percentage of debtors with a bachelors degree rose from 11.2 percent in 2006 to 13.6 percent in 2010. The group tracked similar but smaller increases in consumers with two-year associate and graduate degrees. Meanwhile, the percentage of debtors with a high school diploma or who did not finish college declined."
Study comprises 50,000+ respondents, from 2006 to 2010
This Sept. 13 piece at CNN.com explains a distinction between total filers and the rate of increase:
While those who didn't graduate from college make up 70% of debtors, the study found that the rate of college graduates filing for bankruptcy increased by 20%.
"While less educated, low-income individuals continue to represent the typical bankruptcy filer, this report underscores a sophisticated evolution of the profile of the American debtor that now extends to disparate age, income and ethnic groups," [said Leslie Linfield, executive director and founder of the IFL].
The study involved more than 50,000 respondents and ran from 2006 to 2010, tracking the financial status of debtors since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act.
Not surprisingly, the rate of unemployed Americans filing for bankruptcy increased by 21% since 2006. But since the study was first conducted in 2006, there has been a gradual shift in bankruptcy filings toward higher income earners.
Data collected from more than 200,00 consumers shows wide trauma in wake of The Great Recession
The nonprofit Institute for Financial Literacy (IFL) today released its own PR about the report, which can be accessed either here or here. From its press release, some crucial findings of the study:
"The Great Recession has had a dramatic impact on the bankruptcy filings of American consumers across the economic spectrum -- including college educated, high income earners," said Leslie E. Linfield, Executive Director and Founder of the Institute for Financial Literacy. "While less educated, low income individuals continue to represent the typical bankruptcy filer, this report underscores a sophisticated evolution of the profile of the American debtor that now extends to disparate age, income and ethnic groups." The Center for Consumer Financial Research, an independent division of the Institute for Financial Literacy, collected information on gender, age, ethnicity and other factors over a five-year period from nearly 200,000 consumers seeking pre-bankruptcy credit counseling or post-bankruptcy debtor education courses throughout the United States. The Institute for Financial Literacy has published a Consumer Bankruptcy Demographics Report annually since 2005. The 2010 report provides a five year perspective of the American debtor.
Key demographic findings include:
- College education doesn't appear to ward off bankruptcy as the rate of degree holders filing bankruptcy increased by 20%;
- Bankruptcy filers earning incomes above $60,000 increased their rate of filing by over 66%;
- Asian American filings have doubled while Hispanic/Latino filings increased by over 33%;
- Americans age 34 and younger decreased the rate of filing bankruptcy by over 30% since 2006;
- The Gender Gap in bankruptcy filings is closing;
- Americans who are married are more likely to file and represent over 60% of all filings; and
- The primary reasons for financial distress include overextension on credit; unexpected expenses, illness/injury and divorce.
Poverty level highest in decades
Meanwhile, the nation's poverty rate has climbed from 14.3 to 15.1 percent, according to an article at Forbes.com:
The ranks of the nation's poor have swelled to a record 46.2 million - nearly 1 in 6 Americans - as the prolonged pain of the recession leaves millions still struggling and out of work. And the number without health insurance has reached 49.9 million, the most in over two decades.
The figures are in a Census Bureau report, released Tuesday, that offers a somber snapshot of the economic well-being of U.S. households for last year when joblessness hovered above 9 percent for a second year. The rate is still 9.1 percent at the start of an election year that's sure to focus on the economy and President Barack Obama's stewardship of it.
An 'equal opportunity' affliction that requires a no-nonsense analysis and level-headed business decision
As I've tried to emphasize whenever appropriate, the need for bankruptcy protection is, so to speak, an "equal opportunity" condition--even before climbing into record levels of poverty. That is, "being bankrupt" cuts across all sorts of pay scales, demographics, industries, titles at work, ethnicities, and as we see here, education levels or academic awards. The one major difference, as I've also repeated occasionally, is that the wealthier and more sophisticated the businessperson, the more likely the view that bankruptcy as simply another utensil in the toolchest of doing business.
In other words, no shame is attached--it's merely a business decision. To be sure, it's not a business decision to be taken lightly (and certainly not one worth risking fraud). But given the excesses of Wall Street and the failure of government to otherwise to make things right and put people back to work, the stigma and shame of years ago are no longer relevant to the contemporary decision to invoke the power of bankruptcy protection.
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