One in ten adult Americans have turned to the consumer bankruptcy system for help. For the past almost forty years, the only systematic data collection about the people who file bankruptcy comes from the Consumer Bankruptcy Project (CBP), for which the authors serve as co-principal investigators. In this Article, the authors use CBP data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years. The authors use principal component analysis to leverage these data to identify distinct groups of people who file bankruptcy. This technique allows the authors to situate the distinctions among filers’ financial and household situations within what bankruptcy laws and courts can and cannot provide. The authors critique the consumer bankruptcy system, based on the totality of people who have used it recently, to identify avenues for reforming bankruptcy and to underscore the broader economic, racial, and social issues that consumer bankruptcy filings highlight.
Using the statistical technique of principal component analysis (PCA), this paper analyzed the data from the Consumer Bankruptcy Project (CBP) and found nine groupings of financial and household situations among bankruptcy filers:
|Owns a car|
Value of all cars
Amt. of car loans
Value of home
Mortgage reason for bkr.
|# of prebkr. “privations”|
# of prebkr. “copes”
Prebkr. time struggling
|Young, with Children|
|Owners, other prop.|
|Black and/or Women|
|Value, other real estate|
Nonhome secured debt
Female head of household
|Unsecured debtors |
|Judgment Lienees |
|Med. reason for bkr. (-)|
|Amt. of priority debt|
Amt. of unsecured debt
|Amt. home invol. liens|
While probably a horrifying result from this article for the authors, this categorization of who files bankruptcy is of tremendous value for consumer bankruptcy attorneys in deciding where and how to focus their advertising for potential clients.
This article should also be understood as an important opening move in the likely battle over consumer bankruptcy reform, following immediately after the 2020 introduction of the Consumer Bankruptcy Reform Act, sponsored by Senators Warren & Durbin and Representatives Nadler and Cicilline. By tailoring bankruptcy to fit the different types of debtors who need relief, such reforms would be a welcome improvement. This should include greater mortgage modification, heightened vehicle cram-down and an accelerated discharge of more types of unsecured debts, especially student loans.
As is common in articles that, as the authors themselves describe, seek to "assess the consumer bankruptcy forest rather than its individual trees", there are some errors and omissions, some large, some small, in its description of that forest, including:
- The vague statement that Chapter 13 "requires repayment to creditors over a three- to five-year repayment plan" fails to acknowledge that Chapter 13 debtors are not required to pay more to unsecured creditors than they would in Chapter 7;
- The statement that "[i]n neither chapter does bankruptcy discharge ... past-due property and income taxes" completely ignores that most income taxes, for which the debtor has filed a return more than 2 years ago and which were due more than 3 years ago, are discharged.
- Even when non-dischargeable, that taxes can be repaid through a Chapter 13 plan without further interest or penalties is often the best and most cost-efficient means of resolving tax problems, especially compared to Offers in Compromise, etc.
- While the data in the CBP records the status of the case as dismissed, discharged or pending, that ignores (or at best, as presented in Table 8 in the article, is opaque) the important distinction of whether a Chapter 13 was confirmed or not. The completion rates of confirmed Chapter 13 cases, which excludes pro se debtors and those that fail to may any initial plan payments, may be nearly twice as high. See Measuring Success in Chapter 13, CONSIDER CHAPTER 13 (June 5, 2016).
- Additionally, not all Chapter 13 case complete with a discharge or dismissal, but are instead simply closed. That may be because the debtor failed to complete the "exit" requirements or because there was a prior bankruptcy that precluded discharge.
- Further, there seems to be little research about the long or even medium term success rates for Chapter 7 debtors. How often do they lose their homes or cars? What resolutions do they find for tax debts? With those unanswered, the comparison with Chapter 13 discharge rates is incomplete.
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