The Bankruptcy Revolving Door

Abstract

Using credit report data dating back to 1997, this study unveils that nearly 46% of consumer bankruptcy filings in 2023 came from people with a prior bankruptcy record. This percentage has increased at an average rate of 61 basis points per year since 2016. The majority of repeat filings occur after a discharged case rather than a dismissed one, and nearly half of refilers have previously filed under Chapter 7, challenging conventional beliefs about repeated filings. Moreover, the temporal gap between successive filings is substantial, with most refilings occurring over 7 years after the initial filing. This paper then reveals that a person's past filings are strongly correlated with increased future filings after 7 years, even after controlling for a wide range of variables including debt levels and demographic characteristics. Therefore, this paper contends that the prevalence of refiling can be attributed to two main reasons: first, individuals with a prior bankruptcy frequently face new financial distress, and second, they are more predisposed to file for bankruptcy compared to those with no bankruptcy record.