Graying of U.S. Bankruptcy

In 1991, elders made up 2% of the bankruptcy relief claims; now the share is 12%. The leap in elder filers means about 98,000 families or about 133,000 elders out of 51 million people over 65 file for bankruptcy to get relief from all debt, excluding nondischargeable student debt (which is often incurred by co-signing the student loans of children or grandchildren). In most cases, those filing for bankruptcy come from the lower end of the income ladder. Of elder households that filed for bankruptcy in 2016, 78% made less than median total income.

Explaining Elder Bankruptcy

Several overlapping factors have contributed to the rise in elder financial distress. In the last 40 years, trade unions have weakened, real wages have stagnated, and good pensions have eroded—trends that catch up with people as they age. Companies have offloaded longevity and pension risk onto employees by eliminating pension plans or switching from defined-benefit plans to less-certain 401(k)-type options.

Another big impersonal force is the rise in medical costs, which has coincided with political decisions to have Medicare pay for a smaller share of elder health care. The longer people live, the higher the medical costs.

Perpetrators and predators are another source causing bankruptcy risk among the elderly. Banks hype low-interest credit cards, even to elders who have just filed for bankruptcy. According to the Federal Reserve’s Survey of Consumer Finances, 60% of senior households had debt in 2016 and 29% of senior households owed money on mortgages or other housing debt. These rates represent a roughly 50% increase in the share of senior households holding debt over the last 25 years.

It is clear that America’s evolving labor markets and crumbling retirement system play a central role in the graying of bankruptcy.