Income interruption is a powerful form of financial distress.² Even in good times as measured by low unemployment rates and soaring stock markets, job instability for some workers arises from the very changes in business and industrial patterns that also lead to enhanced security and prosperity for others. Displaced workers may find another job after some delay, but there is a real chance that the new job will pay less and have lower benefits than the old one did. For some workers in this situation, whose use of debt may have been based on the assumption of uninterrupted employment, bankruptcy becomes their solution of choice.

Given these factors, it seems that individuals filing for bankruptcy should show a higher-than-expected chance of being unemployed, and that the current job tenure of employed filers should be lower than otherwise expected.

In this article, we report on the employment status of debtors who filed 1,931 no-asset chapter 7 petitions during calendar year 2000. The petitions and associated schedules were collected from offices of the U.S. Trustee Program on four occasions during the year. The number of petitions collected from each office was in proportion to the annual number of filings recorded for that office during the previous year.³

Employed or Unemployed?

We used information from Schedule I to determine whether the debtor and spouse, if applicable, were employed at the time of filing. Out of 1,931 petitions, 1,560 primary debtors (i.e., the only or first debtor on the petition, whether a joint petition or not) were employed. Thus 19 percent of the primary debtors were unemployed at the time of filing.

Table 1 contains a detailed breakdown of unemployment percentages among various categories of debtors; men are shown separately from women for non-joint filers, and the major categories of marital status are also shown separately. No sub-group displayed a percentage of unemployment less than 9 percent. For joint filings, the table shows employment for the primary debtor, usually the male spouse.

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[T]he unemployment percentages for chapter 7 debtors were much higher than the population at large, and chapter 7 debtors were much more likely to be working than not working at the time of filing.

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During calendar year 2000, the official seasonally adjusted unemployment rate for the United States hovered around 4 percent.⁴ Precise comparisons between the official unemployment rate and the percentage of unemployed debtors are not possible because the national unemployment rate counts someone as unemployed only if the person is actively looking for a job; we cannot determine how many of our unemployed debtors were seeking work.

Nevertheless, two facts seem clear: the unemployment percentages for chapter 7 debtors were much higher than the population at large, and chapter 7 debtors were much more likely to be working than not working at the time of filing.

Geographic Distribution of Unemployment

The map in Figure 1 presents the unemployment percentages of our debtors across the states. Because the numbers of debtors from some states were quite small, the data must be interpreted with care. More than half the states show unemployment percentages of less than 20 percent. Alaska, Delaware, Massachusetts and West Virginia debtors had rates of 30 percent or more.⁵

Job Tenure of the Primary Debtor

We turn next to the question of how long the debtors had been in the jobs they had at the time they filed for relief. We could establish most recent job tenure for 1,419 of the 1,560 employed primary debtors in our study population. The distribution of tenure for the group is shown in Figure 2.

The figure shows that 30 percent of primary debtors had been employed for less than one year prior to filing. Half of the population had been employed for less than two years. At the other extreme, 20 percent had been employed continuously for more than 10 years, including 5 percent for more than 20 years.

For comparison, note that in February 2000, the Bureau of Labor Statistics reported that employed wage and salary workers 25 years and older had median job tenure of 4.7 years.⁶ The equivalent number for our bankrupt population, 2.0 years, was only 43 percent of the national value.

Table 2 breaks the tenure data down by gender of the primary filer.⁷ Men and women filing individually displayed the same median tenure of two years, while the primary debtors in joint filings were more stably employed, with a median of 3 years.

Job Tenure of Spouses

We identified 647 petitions filed by married debtors: 499 were joint filings and 148 by one spouse filing individually. Information on spousal employment was presented in enough cases to allow some comparisons. The unemployment rates and job tenures of the spouses in these two groups differed markedly, as shown in Table 3.

As might be expected, the data indicate that spouses in joint filings are more likely to be employed, and if employed, to have been in their jobs somewhat longer, than the spouses of married debtors filing singly. The joint filing indicates a greater participation of the spouse in the earning power of the household.

Conclusions

Eighty percent of a sample of no-asset chapter 7 debtors in calendar year 2000 were employed at the time of filing. Half of these debtors had been in their current jobs two years or less, which was 43 percent of the nationwide median job tenure during that year. Unemployment rates of debtors by state varied from less than 10 percent to more than 30 percent. Spouses in joint filings were more likely to be employed, and to have been employed longer than the spouses of debtors filing individually.

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Footnotes

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

² The authors of the Consumer Bankruptcy Project interpreted their study of bankruptcy filers in 1991 to "suggest that job-related income interruption is by far the most important cause of severe financial distress for middle-class Americans." Sullivan, Teresa A., Warren, Elizabeth, and Westbrook, Jay Lawrence, The Fragile Middle Class (2000), p. 75. Return to article

³ For a summary of other characteristics of this group of debtors, see Flynn, Ed, and Bermant, Gordon, "The Class of 2000," Amer. Bnkr. Inst. J., October 2001. Return to article

⁴ For a useful review of unemployment statistics, see http://www.econedlink.org/lessons/index.cfm?lesson=EM219. Return to article

⁵ Alabama and North Carolina are not served by the U.S. Trustee Program. A problem with the data prevented us from including Louisiana in this analysis. Return to article

⁶ See http://www.bls.gov/news.release/tenure.t01.htm. Return to article

⁷ The total number of debtors shown in the table was reduced by our inability to discern gender in some cases. For a comparison of the values in our table with values based on a 1981 sample of debtors, see Sullivan, Teresa A., Warren, Elizabeth, and Westbrook, Lawrence Jay, As We Forgive Our Debtors (1989), Table 8.2 at page 154. Return to article