Bankruptcy: The Slots, the Docs, and the Dockets

What are some of the common reasons that people file for bankruptcy? A 2006 Federal Reserve study suggests bankruptcies are related to several common social factors.  The higher the prevalence of these social factors, the higher the bankruptcy rate.

The study broke down the nation by county and correlated the rates of each social factor to the rates of bankruptcy in each county. Here are a few common factors.

Divorce

Divorce is thought to have a “strong positive relationship” to bankruptcy filings. For one percentage point added to a county’s divorce rate, there are 7.8 more bankruptcies per 10,000 households. In particular, women suffer a 30 percent economic decline in their first year after a divorce that may contribute to bankruptcy, the study noted.

Medical costs

A one percent increase in the lack of health insurance means 0.9 more bankruptcies per 10,000 households. Several studies found that injury or illness was listed as a cause in about one-quarter of a sample of bankruptcy cases. Another study found that uninsured households are 28 times as likely to file for bankruptcy as other households.

Gambling

While previous studies tended to find no relationship between the proximity of gambling and bankruptcy rates, the fed study suggests otherwise. Every 100 miles of distance between a county and a casino results in 4.3 fewer household bankruptcies per 10,000 households. Counties with legal card room have 11 more bankruptcies per 10,000 households. However, lotteries and race tracks corresponded to fewer bankruptcies, reason unknown.  

Likewise higher disability and public assistance rates are consistent with higher rates of bankruptcies, as well.  Higher marriage rates, widowed rates, and homestead exemption rates also show higher bankruptcy rates.