Baby Boomer Bankruptcy Filings Skyrocket

More and more Baby Boomers are filing for bankruptcy, and one in seven people who file in the US are now 65 or older, which is a fivefold increase over just 25 years. This is alarming.

In 1991, people over 65 years old made up just 2% of people filing for bankruptcy, but that figure rose to more than 12% by 2016, according to a recent article in the Financial Times entitled “The Boomers Going Bust: Why Elderly Bankruptcy Is Rising in America.”

The article highlights a 2018 report titled “Graying of US Bankruptcy,” which noted that of the 800,000 people/households that filed for bankruptcy in 2016, about 98,000 families or about 133,000 seniors – since many file jointly as couples – went broke. That’s very sad.

Of course, the total population of seniors as a percentage of the US adult population has steadily risen in recent decades from 17% of the population to 19.3%. But that doesn’t explain the explosion in bankruptcy filings by those 65 and older in the last 25 years.

The authors of the 2018 report cited above warn: “The changes are so great that the broader trend of an ageing U.S. population can explain only a small proportion of what is happening in the bankruptcy courts.”

The rising bankruptcy trend among seniors is part of a larger trend of social and economic forces in the country that are wreaking havoc on the lives of many older Americans just trying to get by. They are living longer and paying ever-higher medical costs, and many of them have little or no company pensions and, sadly, little or no personal savings of their own to help them stay afloat.

Even worse, as I have pointed out often, many seniors still have a lot of debt. Many of today’s seniors were raised by parents who were explicitly against borrowing money – especially after retirement. But attitudes have changed the past couple of decades when it comes to debt – and particularly when it comes to credit card debt – which was almost nonexistent in the 1960s and early 1970s.

Since then, credit cards have become far more readily available and accessible, and often come with attractive interest rates, especially if you have a good credit score to start out with. Recent data also show that more seniors than ever still have outstanding home mortgages.

According to the most recent Federal Reserve Survey of Consumer Finances, only one in five Americans (20%) 75 or older was in debt in 1989. By 2016, almost half were in debt!

Following the Great Recession of late 2007-early 2009, the wealth of average upper-class Americans had more than recovered by 2016, whereas the wealth of lower- and middle-class families was still at 1989 levels. And many of these lower- and middle-class families turned to credit cards and borrowing to keep the lights on and food on the table.

The Baby Boomer attitude toward debt has not turned out to be as frugal as you would think, given they were raised by parents who lived through the Depression. Many economists suggest it’s partly because they have jobs that don’t keep up with inflation in terms of pay, and many have had to take multiple jobs to make ends meet.

At the same time, many companies have abandoned defined benefit pensions and left savings up to workers via 401(k)s where employees are in charge of their retirement savings. Workers must be knowledgeable to come out the other side with a pension they can live on for 25 years. The spike in bankruptcy filings confirms that many are not.

Most seniors file for bankruptcy under Chapter 7 or Chapter 13, and those filing under Chapter 7 can basically have most of their debts wiped away. However, assets can be liquidated to pay off creditors. Plus, if seniors have cosigned for their kids’ or grandkids’ student loans, these can’t be discharged and can actually be deducted from Social Security payouts, which are protected by law from most other creditors.

Seniors who have equity tied up in their home generally file Chapter 13, which reschedules debts over three to five years and generally protects the home so they can keep it.

According to pro bono bankruptcy lawyer Charissa Potts, she tells most of her clients not to file for bankruptcy at all, but they do it anyway. She says eight out of 10 file anyway because they are tired of being harassed by creditors.

This is a troubling trend and, sadly, it may get worse before it gets better.