Available at: https://ssrn.com/abstract=4911339
Abstract:
Using credit report data dating back to 1997, this study unveils that nearly 46% of consumer bankruptcy filings in 2023 came from people with a prior bankruptcy record. This percentage has increased at an average rate of 61 basis points per year since 2016. The majority of repeat filings occur after a discharged case rather than a dismissed one, and nearly half of refilers have previously filed under Chapter 7, challenging conventional beliefs about repeated filings. Moreover, the temporal gap between successive filings is substantial, with most refilings occurring over 7 years after the initial filing. This paper then reveals that a person's past filings are strongly correlated with increased future filings after 7 years, even after controlling for a wide range of variables including debt levels and demographic characteristics. Therefore, this paper contends that the prevalence of refiling can be attributed to two main reasons: first, individuals with a prior bankruptcy frequently face new financial distress, and second, they are more predisposed to file for bankruptcy compared to those with no bankruptcy record.
Commentary:
While this study does reveal that individuals are more likely to file subsequent bankruptcies if they have previously successfully filed bankruptcy, the results do not indicate that filing bankruptcy, particularly Chapter 13, is used as a stalling technique. Only 7.6% of all refilers, despite their notoriety, filed two dismissed Chapter 13 cases within a year, and not all of these individuals engage in abuse. (In fact, extension of the automatic stay §362(c) for more than 30 days and subsequent confirmation of their plan both require a demonstration of good faith.)
That this research shows that many borrowers need to file subsequent Chapter 7 bankruptcies, particularly when the borrower continues to have non-dischargeable debts (whether student loans or reaffirmed personal liability for secured debts) does also open the question about whether or how much Chapter 13 bankruptcy, with its less frequent discharges, is truly worse than the quicker and more certain Chapter 7 discharge, if those also lead to repeat filings. Both may instead be traceable as much to continued lack of income or other subsequent financial distress as to deficiencies in the debt relief provided under either regime.
While this paper does find that the amount of non-dischargeable student loan debt increases the likelihood of a subsequent bankruptcy, but it is not clear that the author similarly examined the amount of reaffirmed debt, which is essentially not discharged either, to determine the extent to which Chapter 7 debtors, attempting to holding onto cars and houses, similar to most Chapter 13 debtors, are successful. A repossession of foreclosure following a reaffirmation, resulting in a deficiency balance, would seem likely to increase the odds of another bankruptcy.
On a more venal note for consumer debtor attorneys, this research does point to past clients as a potential source for future clients, especially as the earlier relationship allows for direct contact
For additional commentary, see:
Credit Slips: Bob Lawless- Revisiting How Many People Have Filed Bankruptcy
With proper attribution, please share this post.
To read a copy of the transcript, please see:
Blog comments