Abstract
We exploit the longitudinal nature of the 2007–2009 Survey of Consumer Finances to examine whether determinants of bankruptcy identified in the existing literature are applicable to a period marked by a large downturn in the U.S. economy. We develop a framework to organize the literature on the main causes of filing for personal bankruptcy, then test whether these factors held during the 2007–2009 recession by comparing pre-filing characteristics of households who later file for bankruptcy and households who do not file. We find that, when controlling for a large number of individual and household characteristics, relatively few factors were statistically significant when correlated with filing for bankruptcy during the Great Recession. Age and credit card debt were positively associated with filing for bankruptcy. Changes in households’ circumstances (loss of income, retirement, new child in the household) were also statistically significantly associated with filing for bankruptcy. Notably, factors identified in the literature as related to bankruptcy filing were not significant, including income level and negative medical events. The findings help to better understand the complexity of the bankruptcy filing decision, and how to tailor programs and policies to help households deal with financial issues.
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Notes
Our data do not allow us to test this factor.
We consider here the availability of health insurance; we report on studies linking medical expenses and medical debt to personal bankruptcy filing in the next paragraph.
In addition to student loans, other non-dischargeable debts include taxes, child alimony payments, or debts incurred after filing for bankruptcy. Dischargeable debts include, among others, credit card debt, medical bills, personal loans made by friends, family, and others, and past-due utility bills. (The lists are not exhaustive.)
More information is available at https://www.federalreserve.gov/econres/aboutscf.htm.
For example, we cannot perfectly eliminate the possibility that financial difficulties in the household may lead to both divorce and filing for bankruptcy. The inclusion of many characteristics of respondents and their household in the regression greatly reduces this possibility; in the divorce example, measures of economic characteristics of the household would likely capture most of the financial difficulties.
The respondent refused to answer about his/her household filing for bankruptcy. The imputation process produced different results over the five implicates, and we cannot determine the right value. Our main results are unchanged if regression models include this household (results available upon request).
The respondent is intended to be the person most knowledgeable about the household’s finances, but may not be the household head. See Lindamood et al. (2007) for a detailed discussion of the difference between respondent and household head.
We label this measure “birth” to echo the literature on determinants of bankruptcy (Linfield 2011); it counts children, grandchildren, and foster children of the household head who came to the household between 2007 and 2009. The indicator would include an adult–child moving back home after college, but not other adults joining the household.
The bankruptcy question in the 2009 wave of the panel survey specifically asked about bankruptcy filings since 2007. The bankruptcy question in “regular” triennial SCFs asks about having ever filed for bankruptcy. For comparison, 436 of 4,417 households surveyed in the 2007 SCF reported having ever filed for bankruptcy (a relatively stable percentage from 2004 to 2010).
This issue only affects variables measuring changes between 2007 and 2009, since all other variables were measured in the 2007 wave of the SCF, which always took place before the household filed for bankruptcy (as measured in the 2009 wave of the SCF).
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Acknowledgements
We are grateful to John Grable and Sherman Hanna for helpful comments and suggestions, as well as to participants at the ACCI 2017 Annual Conference. We thank Wilson Amaya and Priyanka Rao for excellent research assistance.
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Bauchet, J., Evans, D. Personal Bankruptcy Determinants Among U.S. Households During the Peak of the Great Recession. J Fam Econ Iss 40, 577–591 (2019). https://doi.org/10.1007/s10834-019-09627-1
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DOI: https://doi.org/10.1007/s10834-019-09627-1