A new study by a professor at the University of Michigan Law School found a disturbing new bankruptcy trend. Our nation’s seniors are increasingly saddled with unmanageable levels of credit card debt — and it’s sending them into bankruptcy.

According to Professor John A. E. Pottow, the average age of people filing for bankruptcy has gotten higher over the past two decades, and the percentage of elderly debtors filing for either Chapter 7 or Chapter 13 personal bankruptcy has more than tripled. The proportion of seniors in our society is also growing — but not nearly as fast.

Pottow identifies credit card debt as the main reason, and data gathered by the Consumer Bankruptcy Project backs up that assertion. The CBP data found that two thirds of seniors going through bankruptcy cited credit card debt — and its associated fees and interest — as the basis of their debt problems. Only 53 percent of younger debtors blamed credit cards.

Is Credit Card Debt Harder for Elderly Debtors to Deal With?

As you might expect, Pottow didn’t find that older people are more likely to be profligate spenders than others. In fact, younger people were more likely to identify “problems controlling spending” as the reason for their unmanageable debt than were those over 65.

Unfortunately, one main reason for the upsurge in unmanageable credit card debt among seniors was because they were relying on credit cards to make ends meet.

People over 65 entered bankruptcy with a median average of $27,213 in credit card debt — much higher than debtors under retirement age, who carried around $15,499 when entering bankruptcy. Seniors also had more credit cards than their younger counterparts, as well — an average of 44.8 percent of seniors had five or more credit cards when they entered bankruptcy, compared to only 32.4 percent of younger people.

According to Pottow, one reason seniors relied so much on credit cards to meet basic financial needs was because they were reluctant to ask friends and family for help. Nearly twice as many debtors under 65 had asked for financial help from friends or family members than had the seniors.

“You don’t have to have an awful conversation with your kids (about your financial problems). You just fill out that thing that came in the mail and you don’t have to tell the kids,” observed Pottow in Forbes magazine.

Seniors were also more likely to cite un-repaid loans they had made to friends and family as a source of their own debt problems.

Seniors also appear to be less aggressive about negotiation with creditors. 60 percent of younger debtors had asked their credit card companies to work with them before they filed for bankruptcy. Whether it was due to a lack of sophistication about new credit card practices or a generational commitment to square dealing, only 37.8 percent of seniors said they had tried to have their interest rate reduced, fees or penalties waived, or credit card debt reduced through debt negotiation with lenders.

Finally, Pottow concludes, seniors entering bankruptcy were generally poorer and more likely to have relied on credit cards to pay basic expenses such as medical bills. 

Source: Forbes magazine, “Credit Card Debt Blamed For Surge In Elder Bankruptcy,” Janet Novack, October 12, 2010