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Bankruptcy Debtors: Who Are You?
By Leslie E. Linfield, Esq.
Consumer bankruptcy attorneys everywhere had a pretty clear picture of who
their clients were. How much they made, how much they owed and how best to
try and help them deal with insufferable debt loads. That was until October
17, 2005.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
radically changed the rules of bankruptcy. The question became, how would
this effect consumer filings? Who would still file? Would they somehow look
different then they did prior to the law's change?
These questions were taken up by the Institute for Financial Literacy (IFL),
a non-profit financial literacy organization based in Portland, Maine and
whose mission is to make effective financial literacy education available to
all American adults. The Institute expanded its mission with the passage of
the BAPCPA by becoming an approved provider of the credit counseling and
financial management instructional course (also referred to as "debtor
education'.)
The answers may be a bit surprising, but this information may prove valuable
to consumer bankruptcy attorneys as they move forward and try to assist an
ever growing financial strapped population.
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
BAPCPA incorporated a new requirement that individuals must first complete
mandatory credit counseling in order to be eligible to file a consumer
bankruptcy case under the bankruptcy code1. This new section reads as
follows; "an individual may not be debtor under this title unless such
individual has, during the 180-day period preceding the date of filing of
the petition by such individual, received from an approved nonprofit budget
and credit counseling agency described in section 111(a) an individual or
group briefing (including a briefing conducted by telephone or on the
Internet) that outlined the opportunities for available credit counseling
and assisted such individual in performing a related budget analysis2."
In addition, the new law requires that certain debtors in the bankruptcy
system must complete a mandatory financial management instructional course
in order to receive a discharge of their debts.3 A married couple filing a
joint bankruptcy petition must each complete credit counseling prior to
filing and a financial management instructional course prior to discharge as
a result of the law's application of these requirements to "individuals.4"
It's worth noting that during the multiple attempts to pass BAPCPA into law,
much rhetoric and little comprehensive research was cited with regard to the
demographics of consumer debtors. We heard much about 'abuse', high income
filers and hidden assets with little to back up these claims.
During the development of its credit counseling service the Institute for
Financial Literacy incorporated a research component into its delivery
platforms to allow large scale data collection and facilitate the
establishment of research into the demographics of the consumers considering
filing bankruptcy (those seeking credit counseling.) This would allow a
meaningful analysis of what changes BAPCPA would have on those consumers
seeking bankruptcy protection as well as set baselines for future research.
So What Did We Find?
During the first and half months, five thousand and ninety four (5,094)
clients of the Institute volunteered to complete a survey. This compared
with nearly 138,000 new bankruptcy cases filed nationally between October
17, 2005 and March 31, 2006 gives us a statistically valid sample. If all
of these respondents filed bankruptcy petitions5, this would represent 4% of
all new cases filed for the period.
Gender
There appears to be a gender split with 53.8% indicating that they were
female, while 46.2% were male. In comparison, the current ratio of the
United States is estimated 51% are female and 49% male.
Age
It is in age that we begin to see some interesting numbers appear. There is
a distinct bell curve with potential debtors, starting with the 25-34 year
age range (22.7%), topping out with the 35-44 year age range (28.6%) and
slopping back down with the 45-54 year age range (22.4%).
One statistic which may cause concern is the percentage of senior citizens
who are considering seeking bankruptcy protection. The Institute's survey
found 8.9% of the respondents were over the age of 65 years. Though this is
still below their percentage of the U.S. population, in previous research
conducted by the United States Trustees Program the percentage of seniors
filing bankruptcy protection was found to only be 4.4% of their sample.6
Attorneys may find themselves dealing with an aging clientele and need to
address concerns other then debt elimination.
Table 1: Comparison of Age Group Data
Age RangePercentage of Debtors
IFLPercentage of US Adults
18-243.677
25-3422.714
35-4428.615
45-5422.414
55-6413.810
65+8.913

Education
Many who have not suffered financial hardship maybe quick to judge those who
have. They may question the intelligence of an individual in financial
distress and even wonder "What's so difficult about this? Didn't they learn
this in school?" The following looks at the educational levels of
respondents and compares them to the U.S. population.
Table 2: Education
Education LevelPercentage of IFL TotalPercentage of US Population
Graduate4.78.9
Bachelors10.715.5
Associates7.66.3
Some College30.821.1
High School/GED39.728.6
Primary School6.217.4
None.32.2

In response to the question of whether or not students do learn basic money
management in school, the Jump$tart Coalition for Personal Financial
Literacy administers a nationwide biennial survey to measure the financial
literacy levels of high school seniors. In the 2005-06 survey, the results
revealed an average score of 52.4 percent, a failing grade by most measures.
Income
There wasn't a day that went by during the BAPCPA debates that income levels
and means testing (a topic for another day!) didn't come up. So what do
post-BAPCPA clients earn? Surprisingly much less then you would think.
Table 3: Self Identified Income of IFL Respondents
Income LevelPercentage of Responses
Less than 20K44.6
20k-30k24.4
30k-40k14.4
40k-50k7.7
50k-60k4.2
More than 60k4.7

Employment
So with income levels so low, did we find that rates of unemployment were
high? Almost three times the national unemployment rate! The other number
which was of interest was the percentage of respondents who indicated that
they were retired, 10.5%. Again this seems to indicate attorneys will be
dealing with an aging clientele and may need to adjust their practice to
accommodate the needs of these clients.
Table 4: Employment
EmploymentPercentage of Responses
Employed61.8
Unemployed13.7
Retired10.5
Self-Employed7.7
Homemaker5
Student1.3

Causes of Financial Distress
Lastly we will examine the common causes for financial difficulty. During
the credit counseling process clients were asked to pick from a list of
causes of financial distress. Clients were encouraged to choose more than
one cause when describing their situations and therefore the percentages
will equal more than 100%. The table below shows the results:
Table 5: Causes of Financial Distress
Cause of Financial DistressPercentage of IFL Clients
Overextended on Credit55.2
Unexpected Expenses52.3
Reduction of Income46.3
Job Loss32.9
Illness/Injury30.9
Divorce15.2
Birth/Adoption of Child7.9
Death of Family Member7.8
Retirement4.8
Identity Theft2.1

Some of the results were not to be unexpected, such as a high percentage
indicating that they were "Overextended on Credit" and suffered from
"Unexpected Expenses." Where some interesting results emerged were with the
"Illness/Injury" result at 30.9%. Though most attorneys know from
experience that many of the clients they have helped suffered financial
devastation due to medical bills, to see an actual result of over 30% puts
this into perspective.
"Reduction of Income" along with "Job Loss" shows the harsh effects the
"changing economy" has had on many. No doubt there will be much to study
for economist and sociologists for years to come.
Another somewhat concerning result was the number of respondents who chose
"Retirement" as the cause of their financial distress. With 4.8% choosing
this, it was one of the lower responses, but this factored in along with the
other findings around age and retirement there begins to be drawn a
frightening picture for American senior citizens.
Conclusion
The Institute for Financial Literacy plans to continue its research on
consumer bankruptcy demographics and will be publishing another report on
the one year anniversary of BAPCPA. The goal being that as ongoing and
future policy discussions ensue around bankruptcy there will be meaningful
demographic information available about those who are most directly
affected, the consumer.
Meanwhile as bankruptcy attorneys adjusts to the changes the new law brings,
hopefully the information found here will help them better understand who
these clients are and how better to reach out and serve them.
Institute for Financial Literacy
Portland, ME
llinfield@financiallit.org
1Title 11 USC
211 USC sec. 109(h)(1)
311 USC sec 727(a)(11) and 1328 (g)(1)
411 USC 302
5 97% of credit counseling clients received a recommendation to consult an
attorney based upon their financial condition.
6 See Ed Flynn and Gordon Bermant, A Closer Look at Elderly Chapter 7
Debtors, 21 ABI Journal 3 (April 2002).
7 US Census Bureau collects data from ages 15-19 and 20-24, only the 20-24
data was used.


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