Is Bankruptcy Common?
How many of your acquaintances (family, friends, neighbors, fellow parishioners, club members, etc) have a bankruptcy filing on their credit report? One? Two? Think again!
I’ll get to the answer in a moment, but first… how I got there:
- The average American knows 600 people. The US Census Bureau says that 23.3% of the US population is under 18.
- There are a little over 1,000,000 (that’s a million) non-business bankruptcy filings each year in the US. Thankfully, this number has been declining pretty sharply since about 2010, so this figure could easily be higher than 1M on average.
- There are 1.3 adults per non-business bankruptcy filing (because many bankruptcy petitions are filed jointly by couples).
- Bankruptcy filings stay on our credit report for 10 years (just 7 on the Experian if it’s a chapter 13 petition)
- The current estimated US population is 318,000,000.
With these numbers, the answer is easy:
- Multiply the number of people we know by the percentage of the US population that are adults and it gives us the number of adults that we typically know: 600 x 76.7 = 460
- Multiply the number of non-business bankruptcy filings by the number of adults per filing, multiply that number by 10 for the number of years it stays on a credit report, and divide that into the US population to get a percentage of American adults with a bankruptcy on their credit reports: 1,000,000 x 1.3 ÷ 318,000,000 = 4.1%
- Now, simply multiply the number of adults that you know by the percentage of American adults with a bankruptcy on their credit report: 460 x 4.1% =19
If you are a typical American adult, you know 19 people by name who have a bankruptcy filing on their credit report.
I’m sure there are other statistics to keep in mind, such as the average bankruptcy filer’s age, the state, and city we live in, our own age, etc., but this gives you an idea.
Please do not draw from these figures any inappropriate conclusions. Bankruptcy affects individuals at all socio-economic levels and for a wide variety of reasons.
The majority of these filings are attributed to job loss or income reduction (roughly 40% according to our figures). About 1 in 4 are due to poor money management, 1 in 6 due to excessive medical expenses and about 1 in 12 due to divorce. So while bankruptcy is typically preventable with an adequate savings habit, it is far more common than what you may have previously assumed. Hopefully, this new knowledge will help us all remove some of the stigma and be inclusive toward those who have trudged through such difficult times.
Have a great day!
Director of Education
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