Consumer bankruptcies are surging, rising 34 percent in July from the same month a year ago, the American Bankruptcy Institute (ABI) reported last week.
The number of filings reached 126,434, the highest level since October 2005, just before sweeping bankruptcy reforms took effect.
In a statement, ABI Executive Director Samuel J. Gerdano predicted a higher rate of bankruptcies through the end of this year because of personal debt and continuing job losses.
The ABI did not break down bankruptcy filings by age. But a separate survey released in June by the Institute for Financial Literacy in Portland, Maine, found that 23 percent of people who sought bankruptcy counseling and education last year were 55 or older. In all, 45,229 debtors of all ages were surveyed, a number equal to about 4 percent of the 1.1 million bankruptcy filings in 2008.
Leslie Linfield, executive director of the institute, says 73 percent of those surveyed blamed their financial distress on credit card debt or home equity loans, 58 percent cited income reduction, and 6 percent said retirement was responsible for their troubles.
“The whole concept of bankruptcy is to give people a fresh start,” Linfield says. “But older people don’t have the capacity to accumulate assets and gain future earnings to be afforded a fresh start. What happens to them after bankruptcy?”
Jack Williams, a law professor at Georgia State University, says boomers and older people are the fastest growing group of bankruptcy filers in the United States. He says “unique pressures” that make them vulnerable in a down economy have contributed to that trend.
Boomers are “facing layoffs; their children have lost their jobs and moved back home,” he says. “They’re dealing with their aging parents.”
“Retirees are seeing their investment income and returns cut by half or greater. At the same time, their expenses are going up in health care,” Williams says. “And they probably have mortgage debt from refinancing a couple of times to put their kids through college or to build an addition, when borrowing was cheap and made sense.”
Older Americans appeared to be headed for trouble even before the recession took hold. An AARP study released last year found that between 1991 and 2007, personal bankruptcy filings soared by nearly 151 percent among people 55 to 64, and by almost 178 percent among those 65 to 74. Adults age 75 and older saw the highest jump in filings—an increase of almost 567 percent over the 16-year period.
Burgeoning medical debt may be responsible for many of those bankruptcies, the study suggested.
Even when people have health insurance, they still face high medical expenses because of gaps and limitations in coverage, says John Rother, executive vice president at AARP. He says these situations illustrate the need for health care reform.
“Unanticipated major medical costs, combined with inadequate insurance protection, have forced many more families into bankruptcy,” Rother says. “This is a tragedy for all concerned, and we should have a health insurance system for all that would not permit this to happen.”
Carole Fleck is a senior editor at the AARP Bulletin.