Accounting for the Rise in Consumer Bankruptcy Rates in the United States: A Preliminary Analysis of Aggregate Data (1945–1981)

While previous surveys of bankrupts and cross-sectional analyses of state data have provided a profile of “typical” bankrupts and the various constraints under which they operate, little in the economic and legal literature on personal financial failure explains the postwar growth in consumer bankruptcies in the United States. This paper constitutes a first attempt to model the theoretically appropriate determinants of aggregate failure rates and to test them empirically for the period 1945 to 1981. The data indicate that the incidence of financial failure has been exacerbated by rising divorce rates, unemployment and credit use, which increased through the mid-1970's. These trends were largely mitigated by increasing consumer wealth held in the form of real estate. However, there is tentative evidence that during its first two years, the Bankruptcy Reform Act of 1978 may have encouraged consumers to petition for bankruptcy.