Analysis of bankruptcy data reveals patterns that point to broader social and economic trends

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The first complete review of bankruptcy filers

A paper co-authored with an University of Illinois at Urbana-Champaign specialist who examines consumer credit issues offers the first comprehensive analysis of bankruptcy filers on BankruptcyHQ over 30 years. It sheds light on the causes of financial stress that affect US creditors.

An analysis of consumer bankruptcy between 2013 and 2019 reveal nine distinct patterns shared by every filer — a conclusion that could provide policymakers with an idea of ways to improve the bankruptcy system more efficient and efficient, according to Robert M. Lawless, the Max L Rowe professor of law at Illinois.

“One of 10 adults within the United States have turned to the bankruptcy system for consumers to seek help, frequently after years of struggle to pay off their debts,” said Lawless and the co-director of the program. Illinois is a member of the law, Behaviour, and Social Sciences at the College of Law. “Many kinds of people apply bankruptcy for a variety of reasons. However, there is a bankruptcy law that is not an all-encompassing solution. We’ve discovered that there isn’t any common bankruptcy type and that the law needs to be adapted to various situations particularly with the patterns of nine we observed from our data.”

The co-authors in Lawless co-authors of Lawless are Pamela Foohey of the Benjamin N. Cardozo School of Law and Deborah Thorne of the University of Idaho. Lawless, Foohey and Thorne are also co-principal investigators for the Consumer Bankruptcy Project, a long-term, interdisciplinary research program that gathers data on demographics of US bankruptcy filers.

Principal component analysis

Utilizing principal component analysis, an analysis technique used to reveal significant trends in a data set, researchers examined 5600 randomly selected U.S. consumer bankruptcy cases that were compiled by Consumer Bankruptcy. Project.

“We employed this bankruptcy process as a method to analyze the financial health of American households,” Lawless said. “But following seven years of accumulating data, we felt it was the right time to look back and take a look at the bigger picture. The big picture is a bit tangled. There isn’t a single archetype to U.S. bankruptcy filers number of distinct causes and some are overlapping.”

The analysis provides nine groups of family and financial circumstances for bankrupt filers: homeowners, car owners women, households of color and single mothers, black women self-employed, homeowners, and those in long-term debt.

“Two of the most significant factors that led to bankruptcy were, in the expected order the automobiles and houses since they are the two highest priced products that consumers purchase,” Lawless said. “The reason to file for bankruptcy to protect these things is to ensure that you don’t lose them which means you’re not left disabled or homeless and in a position where you are unable to get work. The current bankruptcy system provides people the methods to accomplish this.” However, there’s a significant similarities between the two models, according to study.

“These categories aren’t always mutually exclusive, but they do tend to cross paths and overlap in a variety of different ways” Lawless said. “Women and blacks are significantly represented in statistics compared to their proportions in the general population and the same can be said of women of color or divorced women who have children. Their car or house. They are often insolvent due to more than two or three particular financial problems which their business is focused to.” The research also points at deeper flaws within the US economy The authors claimed.

Bankruptcy Law

“Bankruptcy law is a crucial element of the social security net and can assist to alleviate the financial strain of an unfortunate circumstance,” Lawless said. “But there isn’t a panacea to fix his social or financial issues for the entire country. It can certainly be improved.”

One such improvement is the transition towards an a la carte the bankruptcy process, Lawless said. “An enhanced consumer bankruptcy system will allow people the flexibility to customize their case to their particular need for debt relief, which would be something that the Consumer Bankruptcy Reform Act 2020 will allow the bankruptcy filers the ability to achieve,” he said. declared. However, the bankruptcy system that is in its current form is not addressing the root cause of people’s financial difficulties.

“At its heart bankruptcy is a way to get relief from debt that helps people prepare for a brighter tomorrow,” Lawless said. “The bankruptcy code does not have any impact on legislation governing equal pay or paid time off for parents working and having kids, nor the cost of high-quality childcare. If people are considering filing in bankruptcy, they’re an extremely deep financial hole. The lives of many people don’t become brighter in the years that follow bankruptcy.”

This document is scheduled to be released in Georgia Law Review.

“No Down Payment” bankruptcies are common among the minorities and those with low incomes.

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