Just Recently Hired Job Tenure Among No-asset Chapter 7 Debtors

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May 2002

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Income interruption is a powerful form of financial distress.<a href="#2" name="2a">2</a> 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.<a href="#3" name="3a">3</a>

<h3>Employed or Unemployed?</h3>

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.

<big><center>
[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.
</center></big>
<hr>
</blockquote></blockquote>

During calendar year 2000, the official seasonally adjusted unemployment rate for
the United States hovered around 4 percent.<a href="#4" name="4a">4</a> 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.

<h3>Geographic Distribution of Unemployment</h3>

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.<a href="#5" name="5a">5</a>

<h3>Job Tenure of the Primary Debtor</h3>

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.<a href="#6" name="6a">6</a> 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.<a href="#7" name="7a">7</a> 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.

<h3>Job Tenure of Spouses</h3>

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.

<h3>Conclusions</h3>

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.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> 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. <a href="#1a">Return to article</a>

<a name="2">2</a> 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. <a href="#2a">Return to article</a>

<a name="3">3</a> 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. <a href="#3a">Return to article</a>

<a name="4">4</a> For a useful review of unemployment statistics, see <a href="http://www.econedlink.org/lessons/index.cfm?lesson=EM219" target="window2">http://www.econedlink.org/lessons/index.cfm?lesson=EM219</a>. <a href="#4a">Return to article</a>

<a name="5">5</a> 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. <a href="#5a">Return to article</a>

<a name="6">6</a> See <a href="http://www.bls.gov/news.release/tenure.t01.htm" target="window2">http://www.bls.gov/news.release/tenure.t01.htm</a>. <a href="#6a">Return to article</a>

<a name="7">7</a> 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. <a href="#7a">Return to article</a>

Journal Authors

Edward M. Flynn

Gordon Bermant

Karen Bakewell

Journal Date

Wednesday, May 1, 2002 - 12:00

Bankruptcy Rule

2002