High-debt Debtors

High-debt Debtors

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Each year since 1998, the Executive Office for U.S. Trustees (EOUST) has collected 2,000 randomly selected chapter 7 no-asset cases from across the country. All of these cases were filed, processed and closed as non-business consumer cases. Data extracted from the petitions, statements of financial affairs and schedules of assets and liabilities are used for a variety of purposes, and have formed the basis for many publications, including our past articles in the ABI Journal.

Occasionally, we come across a case with extraordinarily high general unsecured debt levels. In this article, we take a closer look at the cases that include at least $500,000 in general unsecured debt. There are 35 such cases among the 8,415 cases in our current database (.4 percent).2

Table 1 compares the basic financial information of the high-debt cases with all of the other chapter 7 cases.


Although these large-debt cases count for fewer than one-half percent of all cases, they account for 14 percent of all general unsecured debt. This is yet another demonstration of the general principle that distributions of money across bankruptcy cases tend to be highly skewed. One consequence of this principle is that the reporting of arithmetic averages across cases, without further elaboration regarding skew, leads to inaccurate conclusions about the amount of money involved in typical cases.

Demographic Characteristics of High-debt Cases

The 35 cases were spread among 17 states. California, Florida and New York accounted for 15 out the 35 cases (43 percent), but these three states also represented 28 percent of the total cases in the database.

More than one-half of the cases (19 out of 35) were filed by males, even though male filers make up only about 30 percent of the entire chapter 7 database. Of the remaining 16 high-debt cases, nine were filed by females, and seven were joint filings by a married couple. In two of the 35 cases, the debtors appeared pro se.

[I]nclusion of high-debt cases without further inquiry, when calculating the impact of consumer cases on the bankruptcy system, may result in inflated averages.

About one-half of the debtors were homeowners (18 of 35), a little more than the average for chapter 7 debtors, but well below the national average homeownership rate of 67.4 percent. However, for those debtors in the high-debt category who were homeowners, the average and median values of their homes were much higher than the values for chapter 7 debtors at large.

Finally, 60 percent of these debtors had relatively low incomes—i.e., $3,000 per month or less. At the other extreme were five cases in which the reported gross monthly income exceeded $7,500. As noted above, the mean income of these debtors does not provide much information about the typical case.

Debt Characteristics: Strong Association with Failed Businesses

Total general unsecured debt reported in these 35 cases was nearly $49 million, with the breakdown in Table 2.


Business-related Cases

Although all of the large debt cases were classified as non-business consumer cases, the petitions and accompanying papers showed that nearly three-quarters of them (26 of 35) were the result of, or associated with, failed businesses. These high-debt cases represented a wide variety of businesses, including three construction firms, two trucking or transportation firms, a coffee shop, pizza parlor, sandwich shop, video arcade, tanning salon, furniture store, interior design store, clothing store, golf course, car wash, engineering design firm and a real estate investment partnership. For the remaining nine business-related cases, it was not possible to determine the nature of the business from the information in the petitions.

Although the cases all appeared to be business-related, the resulting patterns of reported debt varied considerably. Of the 26 cases involving failed businesses, 12 reported primarily general business debts, five arose from deficiencies or foreclosures, four resulted from judgments, three were tax-related,3 one was based primarily on credit card debt and one reported extraordinary student loans (more than $400,000 in student loans to a debtor who opened a pizza shop).

The Remaining Nine Cases

Nine of the high-debt cases did not appear to be the result of business activity, but rather the entry of personal money judgments, tax debt or medical bills. Four appeared to have been caused by judgments resulting from auto accidents, one resulted from a wrongful-death suit and two other cases were the result of a personal judgment for unknown causes. In the remaining two cases, one consisted mainly of taxes owed by a former movie producer, and the other was the result of medical bills incurred by a heart transplant recipient.

It is interesting to note that in the six cases with personal judgments, irrespective of the actions that led to these judgments, information in the debtors' schedules indicated that they had no ability to pay them. Five of the debtors had gross incomes of less than $3,000 per month and rented rather than owned their residences. They were essentially judgment-proof. In some of the cases, the discharge of credit card debt was a relatively small and secondary benefit of the discharge.


Any large-scale study of chapter 7 cases will include some large-debt cases such as those described above. However, inclusion of high-debt cases without further inquiry, when calculating the impact of consumer cases on the bankruptcy system, may result in inflated averages. While some researchers exclude outliers from their studies, cases with the largest debt are often included to calculate these averages. Based on this sample, however, only a very small portion of the debt in these high-debt cases was for goods or services associated with consumer activity. For example, a good portion of the debt in these cases consists of personal and business judgments.


1 All views expressed in this article are those of the authors and do not necessarily represent the views of the Executive Office for the U.S. Trustees or the Department of Justice. Return to article

2 Most of these cases were closed between 1998 and 2001. Only a small portion of the cases obtained in 2002 had been entered in the database at the time of this article. Return to article

3 In fact, more than a third of the debtors reported at least $10,000 in tax debts on Schedule E. Return to article

Bankruptcy Code: 
Journal Date: 
Saturday, March 1, 2003