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Chapel Hill, N. C. — Adverse life events, such as unemployment, unexpected expenses and medical bills are primary reasons that lower-income households decide to file for bankruptcy, according to findings by researchers at the UNC Center for Community Capital and UNC School of Law.

The study, “Coping with Adversity:  Personal Bankruptcy Decisions of Lower-Income Homeowners Before and After Bankruptcy Reform,” examined whether adverse life events influence the personal bankruptcy decisions of lower-income households. The study, designed to isolate factors that statistically predict bankruptcy, dispels the notion often that personal bankruptcy is explained mostly by the financial benefits of filing rather than serious distress.

“Our findings show that respondents filed for bankruptcy not simply because it provided a financial benefit, but also to cope with stressors related to job loss and mortgage delinquencies,” said center research director Mark Lindblad.  Households who experience unemployment were 30 percent more likely to file for bankruptcy.  Similarly, homeowners who experienced mortgage delinquencies were 68 percent more likely to file for bankruptcy in the following year.

Study data revealed that medical problems and lack of health insurance are key contributors to bankruptcy for lower-income households.  Households that had difficulty paying medical bills were 22 percent more likely to file for bankruptcy, said coauthor and UNC Law School Professor Melissa Jacoby. “Households with a family member not covered by health insurance were 25 percent more likely to file for bankruptcy,” she said.

The study comes as policymakers work to restore economic stability in the United States, particularly to housing markets, which continue to reel from the financial crisis of 2008. Many experts propose bankruptcy reforms that allow the restructuring of mortgages of primary residences as the most effective way to deal with a fundamental fact that continues to weaken the recovery: one quarter of all homeowners with mortgages owes more than the house is worth. Such a change to federal bankruptcy law may particularly benefit low- and moderate-income and minority homeowners with subprime mortgages, a group disproportionately affected by the foreclosure crisis.

Center researchers analyzed household bankruptcy decisions gathered through their long-term The Ford Foundation-funded study of homeowners in a $4-billion Self-Help/Fannie Mae affordable loan program. That study provides comprehensive data on life events, household wealth, mortgages and the personal bankruptcy decisions of a sample of lower-income homeowners. The data is helping researchers understand the personal, economic and public policy factors that promote or inhibit wealth building among lower-income households.

Study authors were Lindblad, Jacoby, Roberto G. Quercia, Sarah F. Riley, Tianji Cai, Ling Wang and Kim Manturuk.

Mortgage finance is a key area of study for the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. Part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill, the center offers data and analysis that helps policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Debt & Credit, Default, Bankruptcy, & Foreclosure, Financial Inclusion
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