Bankruptcy Rate Increases for Seniors Over Age 65

Bankruptcy Rate Increases for Seniors Over Age 65

By Michael A. Piekarz
Staff Writer

A new study compiled for AARP Public Policy Institute indicated that the rate of bankruptcy filings by those age 65 and above has more than doubled since 1991.

The study, compiled by Elizabeth Warren, a Leo Gottlieb Professor of Law at Harvard Law School found that 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.


The greatest decrease in bankruptcy filings was found among those age 34 or younger. In 1991, this group comprised nearly half (45.5 percent) of all bankruptcy debtors. This percentage dropped to just over a quarter (26.1 percent) in 2007.


“Lower bankruptcy filing rates for younger people may be the result of healthier finances,” suggested 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,” Warren continued. “Now, individuals nearing or in retirement are realizing how difficult it can be to manage that debt as they age.”


Research used by the study indicated that the median age for bankruptcy filers increased to 43 years old in 2007 from 36.5 years old in 1991.


And the number of older Americans filing for bankruptcy may increase. An ailing economy, increasing healthcare costs and a general lack of retirement preparedness puts financial stress on seniors and their families.


“This study is cause for concern,” said Susan Reinhard, a 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.”


The study results are perhaps partially skewed because the 2005 amendments to bankruptcy law — which changed the bankruptcy status for Americans — curtailed filings during part of the period studied. Researchers surmise that the changes to the law may have impacted generations differently.


The indications of rising rates among the older population may also reflect the increasing financial stress that Americans as a group are feeling today. Part of the cause might also be an increase in medical costs combined with an increased need for medical services due to aging.


Many health insurance policies have high deductibles, co-pays and coverage exclusions. Often, health insurance offers little protection during a serious illness. Uncovered medical expenses can exceed $13,500 for those with private insurance at the start of their illness. People with cancer have average medical debts exceeding $36,000.


A 2005 Harvard University study on the causes of bankruptcy found that illness and medical expenses caused most personal bankruptcy filings during the period covered by the study. Most of those bankrupted by illness had health insurance, and over one-half were middle class homeowners.


The Harvard study also found that bankruptcy was harder on those who were forced to use it. Thirty percent had a utility cut off, and 61 percent went without needed medical care.


“Unless you’re Bill Gates you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick,” said Dr. David Himmelstein, the Harvard study’s lead author.


Published on 16/08/2008 21:24:57