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The Slow Road to Recovery

posted by Katie Porter

Lois Lupica, a bankruptcy professor at the University of Maine, has co-authored A Study of Consumers' Post-Discharge Finances: Struggle, Stasis or Fresh Start, (spring 2008 issue of the American Bankruptcy Institute Law Review) on the long-term consequences of filing bankruptcy. Using data from a large national sample (the National Longitudinal Survey of Youth 1979), Lupica and Zagorsky report that among the study's cohort (people who are now in their mid-40s), 13.7% have filed a bankruptcy case. The core of the analysis is a comparison of bankruptcy filers and non-bankruptcy filers in the sample to examine whether debtors recover after bankruptcy, and importantly, how long that process might take. The findings are mixed.

As a group, bankruptcy filers are more likely to be divorced, female, less educated, live in an urban area, and have a bigger family than those who report not having filed bankruptcy. These data are largely consistent with the prior research of Dr. Teresa Sullivan, Elizabeth Warren, and Jay Westbrook about the characteristics of families at the time of their bankruptcy. However, people who have filed bankruptcy, even years ago in the past, continue to earn much lower wages than those who have never filed bankruptcy. In short, below-average income is a troubling, but enduring, quality of families who seek bankruptcy relief. This conclusion dovetails with the work that Deborah Thorne and I did on the one-year outcomes from chapter 7 bankruptcy, which suggested the importance of stable or rising income to a fresh start. As Lupica & Zagorsky admit, their sample is people in their mid-40s. The trajectory of recovery could look different for people who file bankruptcy later in life or could be different for post-BAPCPA debtors or even for those who filed in the early 1990s as opposed to those who filed in the last few years because of a changing social safety net. More work is needed, but this study single-handedly doubles our collective research on the longitudinal effects of bankruptcy. It's well worth a read.


I volunteer for a program that assists low-income people (primarily seniors) manage their finances. What I see is that some people just cannot deal with the abstraction of numbers, such as those in a bank or CC account.

When you knew whether or not you could afford something by looking in your wallet, these people could function just fine. But they are not able to translate numbers in a statement to a level of understanding that results in "rational" action; as defined by those who can relate the numbers to real dollars.

This is at least a partial explanation for the inability to recover from bankruptcy with a successful "fresh start."

Wages may be stagnant but credit has gotten looser. Last I checked wages across the country have been stagnant. It seems that the wars in the middle east have placed inflationary pressure on just about everything from gas to perishables even to some extent “small business”. As I remember from rushing to the local gas station before gas prices rose from our invasion of Afghanistan, gas prices have never been the same since 9-11 and the prices continued to spike afterwards. Our subsequent energy legislation had little effect other than handing out huge profits to “Big Oil”.(But we got some "green" leg. out of it, which was the only way it would have happen)

Although I do not see a huge increase in debtors’ wages over the life of their Bankruptcies, I do see some. It may be just local though. I seem to recall that Texas has been pretty steady in the job area (Big Oil). For some reason, I have seen an increase in our debtors coming to us to file “Motions to Borrow”, trying to get into newer sometimes more efficient vehicles. The ones who qualify, (1 car per licensed driver in the household) are getting financing. Smack dab in the middle of Chapter 13 Bankruptcy! In order for the court to approve the Motion, they have to show the ability to afford both the plan payments and the new car payments, usually done by showing an increase in income. Oh… we can’t beat up on unsecured creditors too much. (1 car per licensed driver).

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