Comments on: Will you go bankrupt before Social Security?

By: John Quiggin

John Quiggin — Thu, 03 Feb 2005 20:50:46 +0000

Thanks for pointing to this study, Jennifer. It’s true that bankruptcy rates have risen across the board, but they are still much lower for over-65s. From the study

In 1991 about 0.75 per 1,000 of people 65 and older filed for bankruptcy. By 2002, the number was 2.35, the largest growth rate of any age group during the past decade.

As noted in the post, the rate for the working age population is close to 10 per 1000.

By: Jennifer Herzog

Jennifer Herzog — Thu, 03 Feb 2005 20:11:36 +0000

“Children can’t go bankrupt. Retired people can, but bankruptcy rates are fairly low for this group, and are likely to stay low as long as Social Security exists.” Actually, the rate at which the population aged sixty-five and older is filing for bankruptcy is increasing. This increase has been so great that the rate at which the elderly declare bankruptcy has more than doubled over the past decade. The extent of this increase is further evident in the fact that the number of elderly filings is now growing faster than the elderly population. See Teresa A. Sullivan, Deborah Thorne & Elizabeth Warren, Young, Old, and In Between: Who Files for Bankruptcy?, 9 NORTON BANKR. L. ADVISER 1 (Sept. 2001).

By: jet

jet — Thu, 03 Feb 2005 18:39:40 +0000

abb1, Some of those medical bills can come from making would should have been good, but ended up being poorly informed choices. For instance, being self-employed and getting your own insurance is a good choice. Not being careful enough to make sure that insurance will cover a $10,000 life-flight is a bad choice. Getting a $10,000 immediately due bill is beyound most people’s means. But then again, if I need the life-flight, bankruptcy doesn’t sound so bad.

By: abb1

abb1 — Thu, 03 Feb 2005 17:19:38 +0000

Mw, I suppose you have a point, but still, things like divorce, unemployment and legal problems are easier to blame on bad personal choices than medical bills. At least arguably. I always assumed that most of the bankruptcies had something to do with opening a small business or being a day trader or some other gamble, some risk-taking activity. I think the fact that 50% of them are medical care related is quite amazing.

By: Ken Houghton

Ken Houghton — Thu, 03 Feb 2005 16:57:40 +0000

John, You dropped the ball on what must constitute “bankruptcy” for the two modes to be comparable: Is one necessarily “bankrupt” if one makes at least 73% of what one spends?

By: mw

mw — Thu, 03 Feb 2005 16:29:33 +0000

No, I don’t think it’s silly to put ‘medical bills’ into a separate category. This is something you probably have little or no control over; it’s different than living right up to or beyond your income. But unexpected medical bills put people into bankrupcy when they are living on the edge—when they have no savings and all their income is committed to expenses. Medical bills are not the only kind of unexpected financial hit that can have this effect, other would include: – Divorce – Legal problems – An expensive auto or home repair bill. – A loan to a family member that is not repaid. – A strike, layoff or other period of unemployment (for most people, strike benefits and unemployment benefits are lower than wages).

By: mw

mw — Thu, 03 Feb 2005 16:18:45 +0000

MW: The UK housing situation you describe sounds just like what we have in the US. What makes you think the UK is worse? I think the situation in the UK is worse for two reasons. First, it’s my understanding that few people in the UK have fixed-rate mortgages whereas fixed-rate mortgages are typical in the U.S. Second, the U.S. housing market has not experienced the same rapid price increases that the UK market has in recent years. If the bubble bursts and interest rates rise, then people will be faced with rising mortgage payments they can’t afford and houses they cannot sell for enough to pay off their debt. Bad combination.

By: Ginger Yellow

Ginger Yellow — Thu, 03 Feb 2005 16:12:30 +0000

kcindc, the key point is that the UK mortgage market is almost exclusively floating rate. If interest rates go up, householders’ debt burden increases immediately. It’s not just new buyers and refinancers who are affected. Rates are still at 40 year lows, but many people have taken advantage of that to take out more unsecured debt, and thus are vulnerable to rises in mortgage rates.

By: Tim Worstall

Tim Worstall — Thu, 03 Feb 2005 16:06:53 +0000

Purely from memory one can only claim bankruptcy in the US once every 7 years. But the laws do vary from state to state.

By: Nicholas Weininger

Nicholas Weininger — Thu, 03 Feb 2005 15:45:56 +0000

I don’t get why this is post-worthy. People who budget within their means and are well insured against catastrophe are less likely to go bankrupt than those who don’t and aren’t. Film at eleven! Or if the point is that a large percentage of Americans are as fiscally irresponsible on their own as the federal government is, that’s both obviously true and irrelevant to a discussion of whether the feds’ irresponsibility is bad and what to do about it. Neither individuals nor the government can make the real consequences of profligacy less serious by decreasing its social stigma.

By: dsquared

dsquared — Thu, 03 Feb 2005 15:29:13 +0000

On reflection Markus is right; the hazard rate estimate here is likely to be biased downward because it’s not a measure of people entering first bankruptcy, which would be the relevant hazard rate for the individual John’s addressing the post to. However, the linked post on johnquiggin.com reveals that the actual number of bankruptcies is more like 2.2 million than 2m, so unless the repeat bankrupt population is very large indeed as a proportion of the total the qualitative conclusion goes through.

By: KCinDC

KCinDC — Thu, 03 Feb 2005 14:52:15 +0000

MW: The UK housing situation you describe sounds just like what we have in the US. What makes you think the UK is worse?

By: abb1

abb1 — Thu, 03 Feb 2005 14:45:11 +0000

It’s a bit silly to try to say whether bankrupcy is ‘caused’ by credit-card debt, vs divorce, vs medical bills, vs the new lack of stigma. No, I don’t think it’s silly to put ‘medical bills’ into a separate category. This is something you probably have little or no control over; it’s different than living right up to or beyond your income.

By: Lewis Hyde

Lewis Hyde — Thu, 03 Feb 2005 14:40:10 +0000

My question would be: will the monies is a “personal” retirement account be vulnerable to a bankrupt person’s creditors?

By: mw

mw — Thu, 03 Feb 2005 14:12:24 +0000

It’s a bit silly to try to say whether bankrupcy is ‘caused’ by credit-card debt, vs divorce, vs medical bills, vs the new lack of stigma. Here’s the thing—people who never pay off credit card bills every month tend to live right up to or beyond their income. They have no savings and nearly all their income is committed to monthly expenses, so any major unanticipated expense can push them over the edge. But the other half of that equation is that it doesn’t much matter—which seems bizarre, but it’s true. The people who live like this rarely have any significant positive net worth anyway, and what they do have is in the value of their home, if they own one, which is generally protected during bankrupcy (laws vary from state to state). What’s more, newly bankrupt people become more creditworthy than before! (because credit card companies know they cannot file for bankrupcy again for a significant length of time—it is like a temporary recovery of virginity ;) Note, too, that it is by no means the case that all of the people who live like this are poor. As an aside, if I had to place my bets, I think there’s a much greater chance for a near-term bankrupcy crisis in the UK than in the US. In the UK, there has been a dramatic run-up in housing prices and people are stretching to buy with low, variable rate mortgages. Combine a bursting of the bubble with a rise in interest rates (neither unlikely events) and look out…