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Bankruptcy Rates Rise Among Older Americans

Health care costs most often to blame; new bankruptcy law makes matters worse

June 18, 2008

While the bulk of bankruptcy filers are in their 30s and 40s, the financial landscape for the oldest and youngest generations has changed considerably. Americans age 55 or older have experienced the sharpest increase in bankruptcy filings, jumping from 8.2 percent of debtors in 1991 to 22.3 percent in 2007.

Those ages 34 or younger experienced the greatest decrease in bankruptcy filings, comprising nearly half in 1991 to just over a quarter in 2007 of all bankrupt debtors.

"Lower bankruptcy filing rates for younger people may be the result of healthier finances," said Warren. "However, young people may be juggling debt longer before they take more extreme measures. If that is the case, we can expect to see more bankruptcies on the horizon as Generations X and Y grow older. Our culture has normalized debt. Now, individuals nearing or in retirement are realizing how difficult it can be to manage that debt as they age."

The research by Elizabeth Warren, a Leo Gottlieb Professor of Law at the Harvard Law School, who compiled the study for AARP's Public Policy Institute, found that by 2007, the median age for bankruptcy filers had increased to 43 years old from 36.5 years old in 1991.

A declining economy, increasing healthcare costs, and a general lack of retirement preparedness puts older Americans and their families at greater risk for bankruptcy and continued financial stress.

"This study is cause for concern," said Susan Reinhard, Senior Vice President of AARP's Public Policy Institute. "It indicates that financial security is progressively eroding for many older Americans. We are exploring why this is happening and what can be done to prevent it."

Undoubtedly, the 2005 amendments to bankruptcy law -- which changed what filing for bankruptcy looked like for Americans -- curtailed filings early on and hold deep ramifications for the individual and research, AARP said.

While it is possible that changes to the law affected various generations differently, bankruptcy's rising rates among the older population reflect the increasing financial stress that so many Americans are feeling today, the group concludes.

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