Experiencing financial troubles is inevitable. There comes a point in life that one struggles with his or her financial obligations resulting in debt. In worse cases, these debts can end up in bankruptcy. This applies not only to individuals but as well as to small businesses and big corporations.
In the U.S., more than 1.5 million people are reported to file for bankruptcy each year. Majority or 97 percent of these filings are made by individuals. But while bankruptcies continue to be filed, the rate has gone down since 2007. In 2015 alone, the Administrative Office of the U.S. Courts (AOUSC) noted that filings dropped by 9.9 percent. It cited that for the entire year ending December 31 of 2015, there were 844,495 cases filed in federal bankruptcy courts compared to the more than 900,000 filed in 2014. The figure for 2015 is considered to be the lowest for any 12-month period since 2007.
The 2014 figure was also down from the previous year by 13 percent from 1.1 million in 2013 to 963,739. Whether businesses or non-businesses, the AOUSC said the number of bankruptcy filings have continued to decrease.
“The numbers are a far cry from what they were back in 2007,” according to Simon Resnik, a Los Angeles bankruptcy lawyer. He said that data from the U.S. courts showed that from 2007, the number of filings went up by 100 percent. Factors that contributed to the huge increase were the high unemployment and underemployment rates during that time affecting some 27 million Americans.
Causes of Bankruptcy
There are various reasons why people go bankrupt. A Harvard University research noted that medical expenses make up 62 percent of personal bankruptcies in the U.S. The study also found that 72 percent of these filings were from people who had a health insurance.
Other factors include lower income particularly as companies cut down on their expenses, student loans, foreclosure, utility payments, credit card debt as well as job loss. Divorce can also be a major financial issue because of its high cost. In addition, unexpected expenses and overspending contribute to bankruptcies as well.
A national study done done by the National Center for Biotechnology Information of the U.S. National Library for Medicine also showed that in 2007, 62.1 percent of all bankruptcies were medical-related while 92 percent of these medical debtors had debts of more than $5,000. The
main reasons were loss of income due to illness and mortgaged a home due to outstanding medical bills. Additionally, most of the debtors were well educated, owned homes, had health insurance and held middle-class jobs.
In terms of age, those in the 35 to 44 age group filed the most medical-related bankruptcy cases in 2013 at more than 186,000 followed by those aged 45 to 54 at more than 170,000. Bankruptcy filings among the seniors aged 65 and older were lesser at only more than 51,000.
Bankruptcies can either be the Chapter 7 or Chapter 13 cases. In a Chapter 7 case, the individual filer gives up his non-exempt property to a trustee who, in turn, liquidates the unsecured property. A home enjoys protection in this particular case unless it is the main cause of the bankruptcy. In addition, 85 percent of Chapter 7 filings are normally classified as no-assets. This means that there are no assets involved for creditors to recover the debt owed to them.
In a Chapter 13 case, the borrower or debtor can still keep his property. However, he or she needs to allot a portion of his income to repay his debts.