According to the Administrative Office of the U.S. Courts, “Bankruptcy filings for the 12-month period ending March 31, 2009, were up 33.3 percent over bankruptcy filings for the 12-month period ending March 31, 2008.” The majority of filings were non-business, or personal/consumer filings. For the same time period just mentioned, these non-business filings increased 32.4 percent in the United States.
For the year ending March 31, 2009, Kansas had 3.33 filings per 1,000 people, which ranked it 30th highest in the nation for all bankruptcy types. Tennessee ranked first with 8.1 filings per 1,000 people.
The most common type of bankruptcy is Chapter 7, which involves a basic liquidation of individual or business assets. As much as 65 percent of U.S. consumer bankruptcy filings are Chapter 7 cases. For the year ending March 31, 2009, Kansas had 2.3 Chapter 7 filings per 1,000 people, which ranked it 31st highest in the nation. Nevada ranked first with 5.73 filings per 1,000 people.
In a 2008 study on household consumption and personal bankruptcy, Ning Zhu, associate professor of management at the University of California, Davis, determined that the reason for personal bankruptcies has changed over the past two decades. In the past, adverse events were most often the reasons for filing, especially those events that were medically related. However, Zhu believes that over the years the reason for filing has shifted to overconsumption. In his report he discussed this more recent trend. He stated, ” Our results indicate that the bankrupt households spend similar amounts on residence and automobile expenditures as the control households do, despite their much lower earning power. Durable consumption makes up a much higher fraction of total household income for bankrupt households. Among bankrupt homeowners, mortgages were 3.21 times higher than annual household income, versus 1.73 times for solvent households. Auto loans were double the annual income for bankrupt households, versus 0.4 times for solvent households.” This over-consumption makes households financially over-stretched and more susceptible to adverse events, consequently leading to bankruptcy.
To read Ning Zhu’s report in its entirety, click here.
To find more bankruptcy statistics, click here to go to the U.S. Courts’ Web site.