Bankruptcy Filings Increasing – Part 1 of 2

The Institute for Financial Literacy released its Annual Consumer Bankruptcy Demographics Report. This report included not only 2010 demographic information, but also comparisons to data collected since 2006. They surveyed their clients, who were fulfilling requirements according to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 required individuals to complete mandatory credit counseling in order to be eligible to file a consumer bankruptcy case under the bankruptcy code. The law also required certain debtors to complete a mandatory financial management instructional course to receive a discharge of their debts.  For purposes of this study, they didn’t know if the client filed bankruptcy after the credit counseling.

The survey covered January to December 2010, and included 52,851 of their clients from the 50 states, Northern Mariana Islands, Virgin Islands and Guam. The information surveyed included gender, age, education, income, employment, marital status and causes of financial distress.

Key Findings

The largest increases from responders in the last five years were those in older age groups, college graduates, higher income levels, unemployed, married, and cause of financial distress. Part 1 of this blog covers education, income and cause of financial distress.

Education – The distribution of the 2010 responders by education level was as follows:  graduate 6.73% (3,508), bachelor’s 13.58% (7,086), associate’s 8.82% (4,601), some college 28.73% (14,988), high school/GED 36.27% (18,919), primary school  5.38% (2,806), and no education 0.49% (253).

The graduate education level had the highest increase of 37.3 percent over 2006; the proportions were 4.9 percent in 2006 and 6.73 percent in 2010. At the bachelor’s degree or higher level, the increase was 26.15 percent compared to 2006; the proportions were16.01 percent in 2006 compared to 28.31 percent in 2010. The largest groups were those with high school diploma and those with some college.

Income –  The proportion of the 2010 responders by income range was as follows:  less than $20,000 per year  38.18% (19,219), $20,000 to $30,000 per year 21.35% (10,747),  $30,000 to $40,000 per year 14.67% (7,384), $40,000 to $50,000 per year 10.05% (5,059),  $50,000 to $60,000 6.56% (3,303), and more than $60,000 per year 9.18% (4,623).  The above $60,000 income group had the largest increase of 66.9 percent in the five years; the proportions were 5.5 percent in 2006 and 9.18 percent in 2010. There was an 8.05 percent decrease in those with incomes under $40,000 during the five years; the proportions were 80.7 percent in 2006 compared to 74.2 percent in 2010.  In 2006, 19.83 percent earned less than $40,000, compared to 25.8 percent in 2010.  The largest income group was below $20,000, which comprised 38 percent of the responders.

Cause of financial distress – The largest changes were in reduction of income (24.44 percent increase) and job loss (20.69 percent increase). The top reason was overextended credit; reduction of income moved up to second place from third place in 2006.  Unexpected expenses moved from number two to number three in 2010.  Here were the causes and the percentages in 2010:

Overextended in credit                                70.50%

Reduction of income                                    64.96%

Unexpected expenses                                 56.62%

Job loss                                                        43.57%

Illness/injury                                                 30.96%

Divorce                                                        15.51%

Birth/Adoption                                              9.15%

Death of family member                              7.86%

Retirement                                                  7.00%

Identity theft                                                1.85%

The greatest increases were in those with higher income and education, and overextended in credit, but those in higher education and higher income levels weren’t the majority of those filing.  The economy has also impacted the college educated and those with higher incomes.

Credit Expert, John Ulzheimer, is the President of Consumer Education at, the credit blogger for, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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