Category: Bankruptcy Data

  • Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

    Posted by

    Pamela Foohey

    Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

    In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

    One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

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  • Bankruptcy Filing Rate Remains Flat

    Posted by

    Bob Lawless

    Annual Filings Oct 2019Every month I see stories about the bankruptcy rate moving up and down. The truth is that the U.S. bankruptcy filing rate has remained flat over about the past four years.

    The table to the right shows the total number of bankruptcy filings, consumer and business, using data from Epiq. For 2019, the figure is an estimate. For each of the past two years, 85.3% of the yearly bankruptcy filings had occurred by October 31. Extrapolating from the 648,000 bankruptcy filings through October 31 of this year, the total number of bankruptcy filings by year end will be about 760,000. That is not much different than the 767,000 in 2017 or the 755,000 in 2018.

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  • Driven to Bankruptcy — New Research from the Consumer Bankruptcy Project

    Posted by

    Pamela Foohey

    In America, people drive — to work, to the doctor, to the grocery store, to their kids' daycare, to see their aging parents. Research shows that car ownership increases the probability of employment and number of hours worked; households without cars have lower incomes and are more likely to be in poverty. In short, cars are essential. Household financial distress can threaten people's cars, and with them, the day-to-day stability that car ownership brings. People thus may file bankruptcy, in part, to save their cars.

    Although there is a substantial literature on financial distress and home ownership, the literature on car ownership, financial distress, and bankruptcy is thin. In Driven to Bankruptcy (available via SSRN, forthcoming in the Wake Forest Law Review), Slipster Bob Lawless, past Slipster Debb Thorne, and I document what happens to car owners and their car loans when they enter bankruptcy.

    In brief, we find that people who file bankruptcy own automobiles at the same rate as the general population. This means that over the last ten years, 15.1 million people filed for bankruptcy owning 16.4 million cars. The majority of these cars, particularly a household's most valuable car, entered bankruptcy encumbered with a hefty loan. And most debtors want to keep their cars, particularly their most valuable and second most valuable cars.

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  • Counting Healthcare Chapter 11 Filings: Are There More Than Expected?

    Posted by

    Pamela Foohey

    This post is co-authored with my student, Kelsey Brandes, rising 3L, IU Maurer School of Law

    Reports of hospitals, physician practices, healthcare systems, and clinics filing for bankruptcy have become seemingly increasingly well publicized in recent years. At the beginning of this year, Pew released a study detailing why rural hospitals are in greater financial jeopardy in non-medicaid expansion states in the wake of the ACA. This may foreshadow more hospital closures and possibly more bankruptcy filings. With this in mind, one of my students at Indiana University Maurer School of Law, Kelsey Brandes (with whom I'm co-posting), decided to survey healthcare businesses that had filed chapter 11 between the beginning of 2008 and the end of 2017 with the goal of assessing how many healthcare businesses filed chapter 11 and why they filed, as based on their disclosure statements and other filings.

    This survey found that, after combining jointly-administered cases, on average, 38 healthcare organizations filed per year during the study's ten year period, as shown by year on this graph.

    Healthcare Post Graph

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  • More Data, Please!

    Posted by

    Jason Kilborn

    Effective reform requires detailed knowledge of exactly what's being reformed. This is especially true of complex systems like corporate and individual insolvency regimes, with numerous inputs and outputs and carefully counterbalanced policy objectives. Two recent papers accentuate an acute weakness in global insolvency reform development–a lack of reliable and comprehensive data on the operation of existing systems, which will of course infect future planned procedures, as well. The global insolvency team at the IMF notes this problem in the context of its current advisory operations, and Adam Feibelman anticipates this problem with respect to India's developing insolvency and bankruptcy law. Both suggest a solution in more careful attention to data production and tracking. Both papers are interesting reading for those concerned with a more responsible approach to global insolvency policy-making, where for far too long it seems the old joke about empirical analysis has rung true: anecdote is not the singular of data.

  • New (From the Archives) Paper on Determinants of Personal Bankruptcy

    Posted by

    Melissa Jacoby

    This working paper is a longitudinal empirical study of lower-income homeowners, including a subset of bankruptcy filers, produced with an interdisciplinary team of cross-campus colleagues, including Professor Roberto Quercia, director of UNC's Center for Community Capital. We just posted this version on SSRN for the first time yesterday in light of continued interest in its questions and findings. The abstract does not give too much detail (see the paper for that), but here it is:

    Personal Bankruptcy Decisions Before and After Bankruptcy Reform

    Abstract

    We examine the personal bankruptcy decisions of lower-income homeowners before and after the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Econometric studies suggest that personal bankruptcy is explained by financial gain rather than adverse events, but data constraints have hindered tests of the adverse events hypothesis. Using household level panel data and controlling for the financial benefit of filing, we find that stressors related to cash flow, unexpected expenses, unemployment, health insurance coverage, medical bills, and mortgage delinquencies predict bankruptcy filings a year later. At the federal level, the 2005 Bankruptcy Reform explains a decrease in filings over time in counties that experienced lower filing rates.

  • Older Americans’ Rising Bankruptcy Filings

    Posted by

    Pamela Foohey

    Older Americans (age 65 and over) are increasingly likely to file bankruptcy and now comprise a larger proportion of the people who file bankruptcy — and the effects are not small. Using data from the Consumer Bankruptcy Project, in a new working paper just posted to SSRN — Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society — my co-authors (past Slipster Debb Thorne, Slipster Bob Lawless, and past Slipster Katie Porter) and I find a more than two-fold increase between 1991 and now in the rate at which older Americans file bankruptcy. We further find an almost five-fold increase in the percentage of older persons in the bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect.

    In the paper, we link older Americans’ increased filing rates with the shrinking social safety net. A story published today in the New York Times (on actual paper and on the front page!) does an exceptional job of both describing our study and detailing the ways in which the risks of aging have been off-loaded onto older Americans: “vanishing pensions, soaring medical expenses, inadequate savings.” The story also highlights the financial and life travails of a few older Americans who filed bankruptcy. Their struggles stem from declining income, lost insurance, and unmanageable medical expenses.   

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  • Savings Plans and Chapter 13

    Posted by

    Mitu Gulati

    David Jones, Chief US Bankruptcy Judge of the Southern District of Texas, has just posted a nifty empirical study of the effects of savings plans on the success of Chapter 13 filings. And, yes, part of the cool study is figuring out how to measure what counts as success in a bankruptcy filing.  The study takes advantage of a natural experiment in the Texas courts and has a bunch of fascinating findings, including about the impact of lawyers and legal culture on the choices that end up being made by the subjects of the bankruptcy proceedings.

    Part of the reason I know about this study is that David was doing a graduate degree at Duke (in the judicial masters program) and I got to see the project at its inception stage in the thesis workshop that I run with Jack Knight. All of the credit goes to David though (and his wonderful advisor, John de Figueiredo) — a fact that will be obvious to my fellow slipsters who know that I don't know squat about Chapter 13. But this is a fun study in terms of the design and findings regardless of whether you love Chapter 13 (okay, I realize that everyone else who reads this blog probably does in fact like or love Chapter 13).  It takes a basic fact about the inevitable fluctuations in expenses that almost everyone has to deal with, and tests what happens when these provision is made for these fluctuations ahead of time (versus when it is not).  Savings plans do indeed seem to make a difference; but a bunch of other factors also appear to matter – some of them quite surprising.  Clearly, as David emphasizes at the end of the paper, there is a lot here that is worthy of further investigation (and maybe legislative change).

    The abstract for the draft on ssrn (that is forthcoming in the American Bankruptcy Institute's journal) reads:

    This paper examines the effects of debtor savings on the viability of chapter 13 bankruptcy plans. The paper further examines the impact of lawyer culture, debtor participation in the bankruptcy process, and judicial activism in the use of the savings program by chapter 13 debtors. Using a data set of randomly selected chapter 13 bankruptcy cases filed in the Southern District of Texas, the analysis demonstrates that while savings has a direct positive impact on the success of chapter 13 plans, the degree of that success is significantly influenced by the views held by debtors' lawyers, chapter 13 trustees, and judges.

     

  • Please support empirical study of decision making in business insolvency

    Posted by

    Jason Kilborn

    Leiden University in the Netherlands has established an impressive strength in insolvency law studies. For example, following his retirement, the eminent Bob Wessels left his massive collection of literature on the subject to a foundation, which permanently lent the collection to the school as the Bob Wessels Insolvency Law Collection. Credit Slips readers can support the efforts of Leiden researchers without parting with their libraries by simply responding to a 15-minute online questionnaire. Niek Strohmaier is a Ph.D. candidate at Leiden conducting a study on judgment and decision making within the areas of business rescue and insolvency law. As he puts it, "We offer a novel perspective on these fields by utilizing the interdisciplinary nature of our research team and by adopting a social sciences approach with empirical research methods." If there's one thing that Credit Slips can rally around, it's empirical research! So I'm hoping we can show Niek our community spirit by responding to his survey at this link (http://leidenuniv.eu.qualtrics.com/jfe/form/SV_51GewBINfBAyfzv). The survey has received a good response from the professional membership of INSOL Europe, but I hope we can supercharge this qualitative data collection with responses from North America and elsewhere, as well. Thanks for your help!

  • People’s Pre-Bankruptcy Struggles — New Paper from the Consumer Bankruptcy Project

    Posted by

    Pamela Foohey

    The current Consumer Bankruptcy Project (CBP)’s co-investigators (myself, Slipster Bob Lawless, and past Slipsters Katie Porter & Debb Thorne) just posted to SSRN our new article (forthcoming in Notre Dame Law Review), Life in the Sweatbox. “Sweatbox” refers to the financial sweatbox—the time before people file bankruptcy, which is when they often are on the brink of defaulting on their debts and lenders can charge high interest and fees. In the article, we focus on debtors’ descriptions of their time in the sweatbox.

    Based on CBP data, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. Two-thirds of people who file bankruptcy reported struggling with their debts for two or more years before filing. One-third of people reported struggling for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing—the “long strugglers”—we find that their time in the sweatbox is marked by persistent debt collection calls, the loss of homes and other property, and going without healthcare, food, and utilities. And although long strugglers do not file bankruptcy until long after the benefits outweigh the costs, they still report being ashamed of needing to file.

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