It is true that the longest post-recession economic recovery in US history is still underway. However, there are signs that the economy is slowly slowing down and if this happens the number of bankruptcy filers will no doubt increase. Knowing how bankruptcy statistics have changed and what those statistics mean can help you put bankruptcy in perspective for anyone who needs to file, or may need to file soon.
Bankruptcies are rising for the first time in nearly a decade
The number of bankruptcy filings has decreased every year since the height of the Great Recession in 2010. According to the latest data from the U.S. federal courts, bankruptcy filings for the twelve month period ended September 30, 2019 increased 0.4% to 776,674 from 773,375 in 2018. However, to get a better idea of what the bigger picture is With the number of bankruptcy filings happening, you need to take a step back and look at the bankruptcy statistics over time.
Big changes in bankruptcy statistics over time
The most obvious statistic is the total number of bankruptcy filings per year, compiled from data from US federal courts. Here’s one to get us started:
The graphic above is a good example of how a severe economic downturn can accelerate bankruptcy filings. The great recession struck in 2008, with the result that bankruptcies rose sharply this year and in the two following years (2009 and 2010). Then the economic recovery set in and continued to be the strongest and longest in US history. But you may also find that the decline in bankruptcy filings has slowed and flattened out.
Does this mean we are on the verge of a new recession? Another downturn is inevitable at some point, and the Federal Reserve has desperately cut interest rates to stop them (three cuts this year alone, after raising rates four times last year). This link between bankruptcy filings and the wider economy is best illustrated by looking at how unemployment rates have changed over roughly the same period (2007-2018):
And the unemployment rate has fallen even further since this chart, to 3.5% in September. Although it is a line graph instead of a bar graph, you can see how closely the general “shape” of the curve is essentially the same in both graphs. Job loss is clearly a major reason many people seek relief from bankruptcy laws. But it’s also helpful to take a closer look at these bankruptcy statistics over time, such as the following table, which lists business and personal bankruptcy filings since 1987:
The graph above begs the question of what happened around the world in 2005, which resulted in a huge surge in bankruptcy filings. It turns out that 2005 was the year that US bankruptcy laws changed radically. The changes were hard pushed by the credit industry and were all designed to make it harder and more expensive for people to file for bankruptcy.
The increase in 2005, in our opinion, is largely due to individuals and companies that chose to file files before the amendments went into effect. This is very illuminating as it indicates that many people are on the verge of bankruptcy at some point. One small thing could be marginalizing them, like unexpected medical expenses or home repairs not covered by insurance, or in this case, knowing that the laws are about to change. In other words, there are literally millions of people and businesses out there who could file for bankruptcy at any time but fail to do so for various reasons, such as the stigma attached to it. After all, no one wants to admit a financial failure, even if it’s not because of something they did wrong. The surge in bankruptcy filings in the last few years prior to 2005 is likely due to the dot-com crash.
What if we back up even further, really zooming out to get the largest picture possible? If you look at the 1900 bankruptcy filing data, it is clear that the bankruptcy filing has grown steadily from the start and has skyrocketed since 1980. The biggest driver of this trend, in our opinion, could be “simple credit from greedy creditors. “The spinning lines of credit available to consumers through credit cards have only really hit the scene for the past 40 years. In 1970 only 16% of households had a credit card – today it is over 70%.
When creditors start to play with consumer credit quickly and easily, things can get out of hand. It did so during the Great Recession, largely driven by the housing market, where lenders were handing out mortgages like candy – mortgages that simply weren’t sustainable for many consumers.
Other important bankruptcy statistics
While the annual filing bankruptcy statistics by and large shed a lot of light on why things are the way they are today, there are a number of other numbers you should know, including the following:
67.5%: The percentage of personal bankruptcies caused by medical bills (source).
204%: The percentage increase in the bankruptcy filing rate of people over 65 over 25 (source). This number is particularly worrying given that 10,000 baby boomers will be retiring every day through 2021.
60%: The percentage of people who spend all or more than they earn (source). The problem this statistic points out is that people are not actively saving when they are spending all or more of their income, which means they don’t have an emergency cushion if something goes wrong that could trigger a bankruptcy filing.
66%: The percentage of people who would have trouble raising $ 1,000 in an emergency (source). Like the previous statistic, this only shows how susceptible people are to “income shocks”. It doesn’t take much to marginally bankrupt people.
24%: The percentage of Millennials who have demonstrated basic financial literacy. Ouch.
This article has presented our opinion on Americans’ debt problems based on the bankruptcy statistics and related numbers. If you are in the middle of a bankruptcy filing or have recently laid off one and find that you need to finance a car purchase, options are available to you. Day One Credit works with a network of lenders who have specialized programs specifically designed to help liquidators get the car they need. Instead of viewing your bankruptcy as some kind of failure, we see it as a positive step to get your financial life back in order and move forward. Getting a bankruptcy loan is a way for you to start rebuilding damaged credit right away. Find out more in our Bankruptcy Car Loan Guide or start our online application today!
At Day One Credit, we are experts in finding the best possible bankruptcy loans to help our customers buy quality used cars. We are not lawyers, we do not give legal advice and nothing we say should be taken as legal advice. Your first step regarding bankruptcy should always be to seek advice from a qualified bankruptcy attorney.
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