“‘Too Little Too Late’: Bankruptcy Booms Among Older Americans”

Yesterday, the New York Times ran a distressing story by personal finance reporter Tara Siegel Bernard about the increasing rate of people 65 and older filing for bankruptcy protection. The story relies on a study that was recently released by professors Deborah Thorne of the University of Idaho, Pamela Foohey of the Indiana University Maurer School of Law, Robert Lawless of the University of Illinois College of Law, and Katherine Porter of the University of California – Irvine School of Law. Professor Foohey has a short write-up of the story and the study on the Credit Slips blog.

According to the article, the study suggests that the surge in bankruptcy filings is being driven by “a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety shrinks.” Specifically, the shift is occurring in the form of “longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care.”

The article discusses some of the common factors that force older Americans into bankruptcy. For example, the article notes that, in 2016, “the bottom 25 percent of households had saved at most $3,260.” Obviously, this doesn’t provide much of a cushion in the event of an unexpected financial event, like a medical emergency. Compounding the problem is the fact that, as the article notes, gaps in Medicare are forcing individuals to pay out-of-pocket for a greater share of their medical expenses.

Also problematic is the fact that many Americans are heading into retirement with more personal debt. For example, more than 13 percent of the lowest-income households “face debt payments that equal more than 40 percent of their income.” Older folks are also getting into trouble because of debt that they incurred to help a family member, such as co-signing student loans for their children. The rising cost of higher education and the explosion of student loan debt are well-documented problems.

Overall, not a pretty picture. But it’s important that scholars and the media continue to pay attention to this growing problem and, ultimately, that policymakers do something about it.

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