Seniors and Bankruptcy: America's Dirty Little Secret

Recently a frequent reader of Credit Slips, a legal secetary of 30 years, shared an observation and made a request. Her observation: a marked increase in the number of seniors calling the office where she works seeking information about filing for bankruptcy. Her request: Would we be interested in blogging about the subject. I asked to respond to her request because this is one of the issues associated with bankruptcy that most dismays.

In 2001, I co-authored a paper, "Young, Old, and In Between: Who Files for Bankruptcy?" with Teresa Sullivan and Elizabeth Warren. One of the most interesting and disturbing findings was that the percent of filers 65 and over (seniors) had increased significantly since 1991. In 1991, seniors comprised right around 2.4 percent of the population of filers; by 2001, that had climbed to 5.1 percent. This represents more than a 200 percent increase in the rate at which seniors filed. Now, we must be cautious when we discuss these findings because the percent of senior filers is quite low to begin with. But so is the percent of filers under 25. They were 7.9 percent of filers in 1991, but only 5.5 percent in 2001--which demonstrates a decrease in the rate at which they filed. And consider folks in the 55-64 age range: in 1991, they were 6.8 percent of the bankruptcy population, while in 2001 they had increased only a very little to 7.6 percent. So my point is that while seniors may make up only a small portion of the filing population, they, unlike other "minority" age groups, experienced a serious spike in filings. Thus, I would suggest that we take the 200 percent increase quite seriously.

The reader also asked if we would speculate on why this was happening. For insight, I turned to an article by McGhee and Draut, "Retiring in the Red: The Growth of Debt Among Older Americans."  First, the authors point out that while the number of seniors with credit cards has held relatively constant (1992-2001), the amount of credit card debt that they are carrying has increased 89 percent--to an average balance of just over $4,000. If they make minimum payments of 2%, it would take 42 years to pay off the balance. Thus, odds are, they will live out the rest of their lives making payments on this debt. The authors also point out that among those seniors who have annual incomes of less than $50,000 (which is 70 percent of the senior population), one in five of those with credit card debt spend more than 40 percent of their income servicing their debts!

Interviews that I've conducted with seniors have convinced me that few of them are making charges to their credit cards willy-nilly. So how to explain the increased balances? McGhee and Draut make the following observations: between 1992 and 2001, the retirement wealth of the majority of seniors declined; seniors became increasingly asset-poor; and the cost of health care and housing for seniors rose considerably.

When the basic costs of living rise, while income and assets decline, something has to give. And what has given is the ability of seniors to evade credit card debt. This cohort of Americans has historically been quite frugal and averse debt, but when there is no choice, they have few options but to turn to credit cards.

And so the cycle goes....And as the credit card debt piles up, and incomes remain inadequate to cover medical care and housing costs, eventually, bankruptcy is the only choice. I have talked the seniors who have filed for bankruptcy and they are humiliated about their situation. They often refuse to tell their friends or children because they are too ashamed. These are not deadbeats who are out to bilk the system. But until we do something to address the skyrocketing costs of health care and housing, we will continue to see increased bankruptcy rates among our seniors. This is a trend of which Americans should be ashamed.

Comments

[Peter C. Fessenden]

While my experience as Chapter 13 trustee (Maine) supports your observation that the number of bankruptcy debtors has risen steadily, you didn't mention the most obvious possible correlations: (a) the increasing number of seniors, and (b) the increasing number of retired seniors. The ratio of senior filers to their proportion in the population would be a more revealing statistic than simply the increased percentage of bankruptcy filers who are seniors.

[yclipse]

In many areas of the country, there is a recognizable correlation between Indian gambling and bankruptcy filings. And the average age of players at any given Indian casino at any given night is typically over 70.