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Abstract:
The Business Bankruptcy Project is a five-year empirical study of about 3,200 business cases originally filed in Chapter 7, Chapter 11 and Chapter 13 in 23 judicial districts during 1994. This first report focuses on financial and demographic data, creating a statistical profile of the businesses in bankruptcy. The data reported in this paper include assets, debts, solvency, corporate or individual debtor type, classification of industries, number of employees, and reasons for filing; the data are reported in the aggregate, by chapter of filing, and by district. These data are used to test a number of hypotheses about the operation of the business bankruptcy system. The report also reveals anomalies in the system, such as certain large debtor companies that file no bankruptcy schedules at all.

The sample is marked by its diversity, which includes a large number of small businesses and a small number of large businesses. Among the business debtors are a surprising number of natural persons in Chapter 11, a procedure designed around a corporate template. Across all three chapters there is substantial overlap of consumer and business debt, with many business debtors reporting a combination of business and personal reasons as triggers for their bankruptcy filings. Financially, the sample as a whole is solvent, with more than 25% of Chapter 11 business debtors claiming balance-sheet solvency. The social impact of bankruptcy is emphasized by its effect on employees. Although many of businesses are small by most measures, extrapolation from the reported data suggest that as many as 2 million employees a year find their employers going into bankruptcy. Real estate companies are prominent in Chapter 11, and more than half of them claim to be solvent.

Abstract:
This paper explores the financial impact of medical problems, using data from Phase III of the Consumer Bankruptcy Project, a survey of 1,974 individual bankruptcy petitioners conducted during the first quarter of 1999 in eight federal judicial districts. Although the questionnaire covered a variety of topics, this paper focuses on debtors' identification of illness or injury as a reason for filing, medical debts, and health insurance coverage. One out of four debtors, or an estimated 326,441 families in 1999, identified an illness or injury as a reason for filing for bankruptcy. One third of the debtors said that they had substantial medical bills, i.e., that they had incurred $1,000 or more in medical bills not covered by insurance. Combining those identifying medical reasons with those indicating substantial medical debts (an overlapping but not perfectly coextensive group), the financial consequences of medical problems were a factor in the bankruptcy cases of an estimated 596,198 families in 1999. Health insurance coverage was sparse for the group, with one in five debtors reporting that they had no health insurance for any family member. The absence of insurance, however, did not correlate with a debtor's identifying a medical problem. Those who had insurance and those who did not were about equally distributed among those who identified a medical problem and those who did not.

The data were re-analyzed by separating the responses of single filing men, single filing women, and joint filing married couples. Households without a male present were nearly twice as likely to file for bankruptcy giving a medical reason or identifying a substantial medical debt as households with a male present. The proportion of debtors providing medical reasons for filing also varied with the debtors' age. Of debtors 65 or older, 47.6 percent listed a medical reason, as compared with 7.5 percent of debtors under 25. Previous studies considering medical problems and bankruptcy in the United States are summarized, although the methods used and results obtained are not directly comparable with the current findings.

Abstract:
Physical products, from toasters and lawnmowers to infant car seats and toys to meat and drugs, are routinely inspected and regulated for safety. Credit products, like mortgage loans and credit cards, on the other hand, are left largely unregulated, even though they can also be unsafe. Because financial products are analyzed through a contract paradigm rather than a products paradigm, consumers have been left with unsafe credit products. These dangerous products can lead to financial distress, bankruptcy and foreclosure, and, as evidenced by the recent subprime crisis, they can have devastating effects on communities and on the economy. In this Article, we use the physical products analogy to build a case, supported by both theory and data, for comprehensive safety regulation of consumer credit. We then examine the current state of consumer credit regulation, explaining why the current regulatory regime has systematically failed to provide meaningful safety regulations. We propose a fundamental restructuring of this regime, urging the creation of a new federal regulator that will have both the authority and the incentives to police the safety of consumer credit products.

Abstract:
This year more children will live through their parents' bankruptcy than their parents' divorce. The signs of economic distress for families with children are everywhere. Foreclosures have more than trebled in the past two decades, and families with children are now about 40 percent more likely to lose their homes to foreclosure than their childless counterparts. A family with minor children is nearly three times more likely to file for bankruptcy. These data are particularly shocking because the number of two-income households has soared as millions of mothers have poured into the workplace. Moreover, women raising children alone are now better equipped for financial independence than ever before in history.

The reasons for their failure offer critical insights into how structural changes in the economy and families' efforts to cope with those changes have left millions of middle class households at risk for financial collapse. Using both national data and original data from the 2001 Consumer Bankruptcy Project, it is possible to explore the increasing vulnerability of middle class households. Families have tried to build their own safety nets, sending all adults into the workforce, but, as these data show, they have not succeeded in outrunning the growing risks of job loss, medical problems, and divorce. Their financial failures illustrate how today's social safety net offers inadequate protection to many hard-working, middle-class families. Identifying the problem is a necessary first step in any discussion about how to improve legal and economic systems.

Abstract:
Just three years ago, Congress enacted controversial amendments to the Bankruptcy Code. The proponents claimed that the changes would drive the "can pay" debtors (of which there were supposedly many) from the bankruptcy courts with tough new income-based eligibility requirements. And indeed, after the enactment of the amendments, the number of people filing for bankruptcy plunged. In this Article - the initial report of the 2007 Consumer Bankruptcy Project - the authors analyze the first national, random sample of post-amendments bankruptcy filers. Contrary to the advocates' claim that high-income filers would be driven from the system and, by implication, that those remaining would have more modest incomes, the data show no change in the income levels of bankruptcy filers after the amendments. These findings thus cast doubt on the suggestion that those purged from the bankruptcy courts - approximately 800,000 in 2007 alone based on trend extrapolation - were high-income deadbeats; they instead appear to have been ordinary American families in serious financial distress. The data also show that debtors filing for bankruptcy in 2007 have even greater debt loads than their counterparts from 2001, a development that seems to track a national trend of increasing consumer debt. The findings thus align with at least two predictions of some legal scholars. The first is that the bankruptcy reform bill was not aimed at high-income abusers but was instead a general assault on all debtors, regardless of their financial circumstances. The second is that debtors are waiting longer - and incurring more debt - before ultimately seeking bankruptcy relief, consistent with the so-called "sweat box" theory of credit card lending.

2007 Consumer Bankruptcy Project, bankruptcy reform, consumer debtors, credit risk, predatory lending

Abstract:
Every policy prescription, economic analysis, or news report about consumer bankruptcy rests on one or another unspoken image of the estimated 1.6 million families that will file in a single year. Data from the 2001 Consumer Bankruptcy Project permit a systematic analysis of the composition of those who file for personal bankruptcy, focusing on their educations, occupations and home ownership status. These attributes serve as a proxy for class identification. Based on these indicia, more than 90 percent of the families in bankruptcy qualify as middle class. These data are a powerful reminder that whatever else might be said about those in bankruptcy, these people are not some sub-group of Americans safely distanced from the middle class, but instead are co-workers, neighbors and families woven throughout the fabric of American society.

Abstract:
In 1999, Professors Jacoby, Sullivan, and Warren undertook an empirical study of bankruptcy filings to understand better the circumstances that brought middle-class families to a state of financial collapse. The information gathered in the study, known as Phase III of the Consumer Bankruptcy Project, revealed that an estimated more than half a million middle-class families turned to bankruptcy courts for help after illness or injury that year. The findings of the study illustrate how bankruptcy files document the economic problems families encounter when bills mount and incomes fall in the aftermath of a medical problem. In this Article, Professors Jacoby, Sullivan, and Warren present the data from their study to illustrate that hundreds of thousands of middle-class families in the United States are devastated economically each year under the current health care finance system. Their data indicate that focusing on the presence or absence of health insurance alone would lead to an incomplete solution. Instead, the authors suggest that since bankruptcy effectively serves as part of the health care payment system, bankruptcy policy should be included in any comprehensive review of health care financing policy.

Abstract:
A central concern in domestic economic policy has been the great increase in consumer bankruptcy filings since 1980. That concern was a major cause of the adoption of the 2005 amendments to the Bankruptcy Code. We analyze the data from three studies of consumer bankruptcy over twenty years to learn more about the causes of that increase. One consistent claim has been that a decline in reputational loss (stigma) has made filing for bankruptcy easier, thus explaining the rise in filings. The principal competing claim has been that increased filings arise from increased financial distress. We find that the declining-stigma hypothesis is implausible because the data show that consumer bankrupts are even more indebted now than their counterparts were in 1981 and 1991 and that there is no identifiable group of less-indebted bankrupts that were tempted into bankruptcy by reduced reputational costs. Those data and other factors support an inference that the stigma of bankruptcy may have increased over the past twenty years.

bankruptcy, consumer

Abstract:
The missing players in bankruptcy are the families whose economic well-being will be tied to that of the filing debtor. They remain in the shadows in the legal and policy debates, while the focus remains almost exclusively on the acts of parties who file and how to adjust incentives to influence their behavior. If the families of those who file for bankruptcy are ignored, it is impossible to assess either the cause or the impact of a bankruptcy filing. Based on data from the 2001 Consumer Bankruptcy Project, this paper offers an analysis of the number of previously-uncounted children, spouses, ex-spouses, elderly relatives and others who are swept through the bankruptcy system with those who file formal petitions. The data indicate that families with minor children are at exceptional risk for bankruptcy, and that women rearing children alone are at even high risk. This paper suggests a promising new line of inquiry about the causes of economic collapse that focuses on the financial impact of child rearing.

bankruptcy, bankruptcy law, family and children

Abstract:
A vigorous market for scholarly data exists, as journalists, lobbyists and legislators search for facts to pepper their public statements and better influence public opinion. In the bankruptcy area, data providers, such as the Credit Research Center located at Georgetown University, have taken money from the consumer credit industry to produce studies supporting the credit industry's political positions. In the case of the CRC, the studies bear the University logo, but the Center describes the data as "proprietary," belonging exclusively to the industry funders who decide what data are released and what data are held private. This paper explores the implications of such funding arrangements on independent research and ultimately on the public debates.

bankruptcy, bankruptcy law, law and social science, family and children

Abstract:
A number of political issues have become publicly identified as women's issues, actively promoted by women's groups and supported by politicians eager to portray themselves as supporters of women. By contrast, some issues are gender-neutral, such as economic or business issues that are of no special concern to any gender-based constituency. The 2002 bankruptcy bill, advanced by the consumer credit industry as its highest legislative priority, features a number of provisions that would fall especially hard on households headed by women and on women with children. Far more women will be affected by changes in the bankruptcy bill than almost any other legislation pending in Washington in the past several years, yet the bill has not become a rallying point for those committed to equal justice and fairness for women. Why? This essay explores how some issues become "women's issues," while bankruptcy remains low on the agenda of most politically active women's groups.

Bankruptcy, Commercial Law, Women's Issues

Abstract:
Chapter 11 has greatly influenced bankruptcy reforms all over the world, but has been attacked as imposing great costs and delay with relatively meager rates of success as measured by confirmation of plans. Although some recent data have hinted at a less negative picture of the efficiency of Chapter 11, it is now also claimed it has become a mere liquidation device controlled for the benefit of creditors, with equity owners dismissed at the door. This paper reports data from two large multi-district studies of business bankruptcy for cases filed in 1994 and 2002. It finds a confirmation rate up to 70% among cases with a realistic change of success and an overall system that disposes of losers quite early in the process. The paper confirms that there was a sharp increase in the use of Chapter 11 for liquidation between 1994 and 2002, but reports that equity owners still retain an interest going forward in a majority of cases.

Bankruptcy, Chapter 11, Reorganization, Corporate, Coprorate Finance, Empirical

Abstract:
In 2001, 1.458 million American families filed for bankruptcy. To investigate medical contributors to bankruptcy we surveyed 1771 personal bankruptcy filers in five Federal courts, and subsequently completed in-depth interviews with 931 of them. About half of debtors cited medical causes, indicating that between 1.850 and 2.227 million Americans (filers plus dependents) experienced medical bankruptcy. Among individuals whose illness led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7% had insurance at the onset of illness. Medical debtors were 42% more likely than other debtors to experience lapses in coverage. Even middle class, insured families often fall prey to financial catastrophe when sick.

medical, bankruptcy, debt, illness

Abstract:
In this essay we offer brief reflections on the best process for critiquing empirical work in law and sustaining an engagement between theoretical and empirical approaches. We emphasize the importance of theoretical work in helping to shape the scholarly agenda, but we urge that theory should be more closely tied to fact. We illustrate our argument by responding to a recent critique of our own empirical work by Professor Rasmussen. His principal claim is that our work should be discounted because we reported on all business bankruptcies, both those of entrepreneurs and those in corporate form. In response, we reanalyze our data, separating the individuals from the corporations; in every case the re-analyzed data support the conclusions of our original paper to the same extent or more strongly. Similarly, his other claims about our work are shown to be incorrect.

theoretical, empirical, scholar

Abstract:
Illness and injury have a significant financial impact on families, but recent news media reporting and lawmaker responses have framed these issues in terms of hospital mistreatment of the uninsured. In this article, we argue that the hospital misbehavior model imposes artificial parameters on a much broader health care finance problem. We demonstrate this empirically, using new data from the Consumer Bankruptcy Project to show that even insured families experience a wide range of direct and indirect financial consequences of illness or injury, including income loss. We also engage in a positive analysis of debtor-creditor law to challenge the assumption that hospitals misbehave when they engage in routine debt collection. Our health care finance system depends in part on self-pay obligation, and lawmakers in some states have given medical providers enhanced collection powers and incentives to be diligent beyond those given to other creditors. When hospitals engage in regular types of collection activity within the boundaries set by debtor-creditor law, they are playing out the role assigned to them by the health care finance system. We recognize that some hospitals have engaged in wrongdoing, and we cannot rule out the possibility that proposed changes in response to the hospital misbehavior model will have positive effects for some uninsured patients. Yet, we suspect that the negatives will outweigh the positives. If lawmakers believe they have solved the health care finance problem by imposing new limits on hospital behavior, they are less likely to tackle the larger issues that leave millions of responsible people struggling financially after a serious medical problem. The hospital misbehavior model also imposes costs on hospitals that hospitals may be ill equipped to bear, and it may lead to further reduction of necessary services at not-for-profit facilities. We recommend replacing the hospital misbehavior model with an expanded vision of health care finance issues that includes all forms of medical debt, direct non-medical costs, third-party payers, and lost income and opportunity - a full range of the economic fallout from a serious medical problems.

health, bankruptcy, debtor-creditor, insurance, hospitals

Abstract:
As part of an international symposium on consumer bankruptcy, we address some of the 2005 changes in the U.S. bankruptcy law. We outline briefly the political climate that led to the 2005 changes, and then we examine the four changes that are likely to have the greatest effect on families in financial trouble. We single out the new consumer credit counseling requirements as providing virtually no help to debtors, serving instead as one more costly hurdle a debtor must jump before filing bankruptcy. Means testing for chapter 7 eligibility has created confusion and perverse incentives for debtors. New burdens and restrictions on attorneys have increased the cost of legal representation. Finally, although not as widely publicized as other changes, new rules requiring audits of bankruptcy filings could significantly change how bankruptcy filers assert legal positions in their petitions and schedules. After considering these changes, we describe the plans of the 2007 Consumer Bankruptcy Project to go into the field to collect data on more than 2,000 bankruptcy filers.

Abstract:
This article draws upon data from a large empirical study of business bankruptcy cases to cast serious doubt upon two of the fundamental premises required to support claims that bankruptcy law should be replaced by default procedures established by contract. A number of proposals have been made to privatize the bankruptcy process by contract. The proponents of these contractualist approaches assume that default structures bargained in the marketplace will reduce transaction costs and improve post-default outcomes. Although these proposals necessarily affect materially the interests of third parties, their proponents suggest devices that are claimed to make that process efficient and non-redistributive.

One premise underlying a contractual approach is that third parties can adjust their prices and terms to account for the effects of the proposed bankruptcy contracts. Prior scholarship has cast doubt on this premise by identifying categories of involuntary and maladjusting creditors who could not make such adjustments. This article for the first time quantifies that critique, showing that in most business bankruptcies there are many such involuntary or maladjusting creditors. Second, contractual theories necessarily assume that many or most business bankruptcies involve relatively few claims, because numerous claims, especially small ones, would impose transaction costs that are substantial enough to make individual negotiation or even unilateral adjustment by each creditor impossible. In fact, the data reveal that the typical business bankruptcy case presents many claims that are too small to be adjusting. These data demonstrate that a contractualist system will likely produce substantial inefficiencies, including a redistribution of wealth to the parties to the proposed bankruptcy contracts. The data support the superiority of a model of bankruptcy law that provides a non-waivable, collective infrastructure for the resolution of a multiparty economic problem.

bankruptcy, business, contractualism

Abstract:
Although Chapter 11 has served as a model for bankruptcy reform around the world, the conventional wisdom has been that it is characterized by a relatively low success rate and endless delay. The data from large samples of Chapter 11 cases filed in 1994 and 2002 demonstrate that this characterization is wrong. Nearly all troubled companies choose Chapter 11 over Chapter 7 liquidation, which means that the system serves a critical screening function to eliminate hopeless cases relatively quickly. Almost half the unsuccessful cases were jettisoned within six months and almost eighty percent were gone within a year. The cases that survive the early screening result in confirmed plans of reorganization around seventy percent of the time. The mistaken conventional view has not only skewed the academic debate, but also prompted changes to the statute in 2005 regarding small business reorganizations, changes that may have produced little benefit in reducing delay at the price of blocking many small business reorganizations of a sort that were succeeding prior to the amendments.

Abstract:
Although data from the Administrative Office (AO) of the U.S. Courts suggest that only a small fraction of the 1.6 million bankruptcies filed each year are business failures, new research from the Consumer Bankruptcy Project reveals that roughly 17 percent of bankruptcy filings involve the failure of a business. First, the AO's count of the number of business bankruptcy filings is discussed in light of figures from datasets that directly contradict the AO data. It is then argued that attorneys' tendency to misclassify bankruptcy cases filed with automated form software systematically skews the AO data so that fewer cases are reported than actually exist.

Data gathered from a 2001 survey of 1,771 Chapter 7 and Chapter 13 filers, 911 of whom were interviewed by telephone, suggest that AO figures vastly undercount the percentage of bankruptcy filers with a failed business. In fact, nearly 99 percent of the debtors in the survey sample who were identified as business owners appeared in the AO data as non-business cases. An apparent downward trend in business bankruptcies in recent years appears to be inaccurate. It is noted that the tremendous inaccuracy of the government's data on business bankruptcies has implications for bankruptcy policy and legislation.

Bankruptcy, Chapter 11 bankruptcy, Chapter 13 bankruptcy, Chapter 7 bankruptcy, Closing firms, Debt

Abstract:
If college is to be the gateway to security and success, then a new financing mechanism is essential, one that lets students take responsibility for the cost of their own educations without burdening their families unduly, forcing them into career choices that push them out of public service, or mortgaging their futures. Our Service Pays proposal is designed to give every student who wants to work hard a means of paying for college - and to give young people an economically viable option to engage in public service for a few years after college.

After describing the high costs of college and the risks associated with student debt, the paper outlines the Service Pays program. The federal government would increase the amount students can borrow in the unsubsidized Stafford loan program, offering money for four years of college tuition, fees, and room and board to any student (regardless of family income) on the same terms as current student loans. The dollar amounts of the available loans would be pegged to average prices at public four-year colleges and universities, and students would have four years to work off those loans. The government would forgive students one year of college expenses for each year the student worked in public service after college. The paper then considers the types of service opportunities that would be eligible, the expected benefits of service, and the likely costs of Service Pays.

education, college loans, student debt, stafford loans, public service, college repayment