More individuals with college degrees are finding themselves in bankruptcy, according to a new study released by the Institute for Financial Literacy. The financial crisis appears to be taking its toll on individuals who had previously been able to keep up on their debts.
College Grads Filing for Bankruptcy Increases 20 Percent
According to the Institute for Financial Literacy, the number of individuals filing for bankruptcy without college degrees has always been higher because they traditionally have lower incomes or less-stable incomes that could result in defaults of their credit cards, loans or other bills.
However, the institute’s study, which involved more than 50,000 respondents and ran from 2006 to 2010, tracked the status of debtors since the passage of the Bankruptcy Abuse Protection and Consumer Protection Act–it found the rate of college graduates filing for bankruptcy is on the rise.
While individuals who have not graduated from college make up 70 percent of debtors, the number of college grad bankruptcy filers has increased by 20 percent. In 2006, only 5.5 percent of debtors earned more than $60,000, but by 2010, that percentage had jumped to 9 percent.
Because the financial crisis resulted in the layoffs of millions of individuals, including many responsible borrowers who usually had enough money to pay their bills and therefore, never defaulted, the demographic for bankruptcy filings has shifted.
“The Great Recession has had a dramatic impact on the bankruptcy filings of American consumers across the economic spectrum–including college-educated, high-income earners,” Leslie Linfield, executive director and founder of the Institute for Financial Literary, told CNN Money.
Now people who would gladly pay their bills if they could simply have no choice but to take the alternate route, which is to dismiss as much debt as possible and try to build a clean slate, or restructure their debt if the court decides this route is better.
The study also revealed that the married Americans experienced a 12 percent increase in bankruptcy filings since 2006. In 2010, married people represented more than 60 percent of all filings.
As for reasons respondents gave for why they chose to file for bankruptcy, most said they were overextended on their credit, had a reduction in income or had lost their jobs. Given the economy as a whole is still rocky and many unemployed workers are still having problems finding jobs, it’s possible the higher bankruptcy rates could continue for some time.