Portraits of Bankruptcy Filers
Pamela Foohey
Cardozo School of Law, pamela.foohey@yu.edu
Robert M. Lawless
University of Illinois, rlawless@illinois.edu
Deborah Thorne
University of Idaho, dthorne@uidaho.edu
Portraits of Bankruptcy Filers
Cover Page Footnote
Pamela Foohey is Professor of Law at Cardozo School of Law, Yeshiva University. Robert M. Lawless is Max L. Rowe Professor of Law at the University of Illinois. Deborah Thorne is Professor of Sociology at the University of Idaho. The authors contributed equally and are listed in alphabetical order. The authors thank their research assistants who have contributed to the success of this project. Without their contributions, it would not have been possible to assemble the data that underlie this Article.
PORTRAITS OF BANKRUPTCY FILERS
Pamela Foohey, Robert M. Lawless & Deborah Thorne*
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One in ten adult Americans has turned to the consumer bankruptcy system for help. For almost forty years, the only systematic data collection about the people who file bankruptcy has come from the Consumer Bankruptcy Project (CBP), for which we serve as co-principal investigators. In this Article, we use CBP data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years. We use principal component analysis to leverage these data to identify distinct groups of people who file bankruptcy. This technique allows us to situate the distinctions among filers' financial and household situations within what bankruptcy laws and courts can and cannot provide. We critique the consumer bankruptcy system, based on the totality of people who have used it recently, to identify avenues for reforming bankruptcy and to underscore the broader economic, racial, and social issues that consumer bankruptcy filings highlight.
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I. Introduction....................................................................575
II. Consumer Bankruptcy Process...................................588
A. BARRIERS TO ENTRY.................................................588
B. CHAPTERS 7 AND 13 .................................................591
III. Consumer Bankruptcy Project Methodology........596
IV. Results: Heterogeneity of Filers.............................598
A. NINE GROUPS OF FILERS...........................................599
B. ASSET AND DEBT SITUATIONS...................................603
1. Cars and Homes................................................605C. EDUCATION AND EMPLOYMENT SITUATIONS.............613
2. Non-Home Real Property..................................608
3. Unsecured Debts...............................................611
D. STATE COURT LAWSUIT SITUATIONS.........................618
E. HOUSEHOLD SITUATIONS..........................................620
1. Lengthy Struggles with Debts..........................620F. ACCESSING BANKRUPTCY, CHOOSING A CHAPTER, AND OBTAINING A DISCHARGE.........................................630
2. Raising Children and Living as a Single Black Woman .............................................................. 623
V. Lessons from the Portraits of Consumer Bankruptcy Filers...............................................................................633
A. WHAT BANKRUPTCY SHOWS BUT CANNOT ADDRESS .. 633
B. TAILORING BANKRUPTCY TO ACCOUNT FOR DIFFERENCES AMONG FILERS...................................638
VI. Conclusion....................................................................642
Appendix...............................................................................644
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One in ten adult Americans has turned to the consumer bankruptcy system for help, often after struggling for years to pay their debts.1 Between 2009 and 2018 alone, over 11 million individuals filed bankruptcy.2 From these numbers, we can infer that there must be bankruptcy filers among our neighbors, our coworkers, our children's teachers, local shop owners, nurses who provide essential healthcare, and the people sitting next to us in church, mosque, or synagogue.
Although bankruptcy touches the lives of many Americans, the only systematic data collection about bankruptcy filers comes from the Consumer Bankruptcy Project (CBP), for which we serve as co-principal investigators.3 In this Article, we use CBP data to evaluate who is using the bankruptcy system today and provide the first comprehensive overview of the people who file bankruptcy in thirty years.
Understanding the characteristics of the people who file bankruptcy yields valuable insights into the consumer bankruptcy system specifically and American households broadly. Knowing who files bankruptcy is necessary to evaluate whether current bankruptcy laws are achieving their goal of providing a fresh start for "the honest but unfortunate debtor."4 Also, although not every person in financial distress files bankruptcy, the data available in
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bankruptcy court records provide a window into the economic stress on American families. The financial and other problems that people bring with them to bankruptcy courts may stem from systemic disparities in the economy and society. Understanding how these issues appear in the bankruptcy system will bring into sharper focus more effective loci for legal and policy changes.
Knowing who files bankruptcy is even more important as the United States revives its economy in the wake of the COVID-19 pandemic. Many armchair experts predicted consumer bankruptcy filings would increase in spring or summer 2020.5 Informed by our work on the CBP, one of this Article's authors expressed skepticism that, despite the financial devastation wrought by COVID-19, there would be a sudden spike in consumer filings.6 As 2021 drew to a close, almost twenty-two months into the pandemic, the spike had yet to come.7
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COVID-19's financial distress likely will have a long tail. In the coming years, it is probable that more people will turn to bankruptcy for help. Policy makers likely will target the bankruptcy law revisions in legislative packages to stimulate the economy. For instance, the Consolidated Appropriations Act of 2021, passed by Congress and signed into law at the end of December 2020, which provided additional COVID-19 relief following the CARES Act,8 included a few consumer bankruptcy provisions aimed at allowing people to stay in their homes and to have working utilities.9
More substantially, in December 2020, Senators Elizabeth Warren, Dick Durbin, and Sheldon Whitehouse and Representatives Jerrold Nadler and David Cicilline introduced the Consumer Bankruptcy Reform Act of 2020 (CBRA).10 CBRA proposes a sweeping restructuring of the consumer bankruptcy system with the goals of simplifying the system and addressing racial and gender disparities in the current system.11 The press
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release announcing CBRA's introduction references COVID-19's economic impact on American families.12 The details about the financial and life situations of the people who file bankruptcy will make for more informed legislative changes, including CBRA. Additionally, establishing a baseline now will tell us if the people who file bankruptcy in the coming months and years differed from those who filed in the years preceding the pandemic.
The CBP dataset has 474 variables from 5,600 randomly selected consumer bankruptcy cases filed during the seven-year period between 2013 and 2019. To make sense of this mass of data, we use principal component analysis (PCA), a statistical technique that exposes strong patterns in a dataset. For our data, this technique suggests nine groupings of financial and household situations among bankruptcy filers. These nine groupings demonstrate the heterogeneity among bankruptcy filers, as well as how larger patterns in society turn up in the consumer bankruptcy system.
Our analyses distill to five principal findings. First, the two most distinct groups of financial situations involve homes and cars, and most people have little equity in these homes and cars when they file. Second, people file to deal with a handful of other key debts: debt secured by other real property, small business debts, and priority and unsecured debts—particularly tax debt. Third, people file after threatened or actual legal actions: following state court lawsuits, facing the financial fallout from their divorces, and after struggling to pay their debts for years, which we have previously linked with debt collection.13 Notable among these issues is divorce. Divorce links with our other two principal findings, which center on demographics. Fourth, bankruptcy remains a women's issue.14 Younger parents, including single women, constitute a distinct
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grouping of debtors. Fifth (and finally), Black households file bankruptcy at more than twice the rate that they appear in the general population. Black single women, in particular, constitute a grouping of filers. These two findings of racial disparity highlight bankruptcy's intersection with larger economic and social issues.
Some of these findings are new, and some confirm what scholars established decades ago about the people who filed bankruptcy at that time, which researchers and policymakers have largely assumed continue to be present among bankruptcy filers. That some of our findings track with prior studies of bankruptcy filers from thirty years ago was far from predetermined. A lot has happened since Teresa Sullivan, Elizabeth Warren, and Jay Lawrence Westbrook published The Fragile Middle Class: Americans in Debt,15 which relied on an earlier wave of the CBP to detail the demographics and finances of consumer bankruptcy filers in 1991.16 They sought to assess what the people who filed bankruptcy at that time suggested about "economic fractures in American society."17 With this frame, they organized their analysis around identified financial risks that middle-class households face...
