Measuring the Financial Health of U.S. Bankruptcy Filers: An Application of Financial Epidemiology

• Main Authors: Donald Hackney, Matthew McPherson, Peter Cashel-Cordo, Dan Friesner
• Format: Article
• Language: English
• Published: People & Global Business Association (P&GBA) 2013-03-01
• Series: Global Business and Finance Review
• Subjects: households financial health; bankruptcy filers; casemix index
• Online Access: http://www.gbfrjournal.org/pds/journal/thesis/20150612160819-OSB7F.pdf

The recent economic recession has impacted the finances of many U.S. households. A portion of these households eventually become insolvent and are forced to file for bankruptcy protection. Given the potentially large re-distribution of wealth that occurs in the bankruptcy process, it is important to understand the factors that lead to bankruptcy in order to mitigate unintended consequences. To do so, one must first identify a simple but comprehensive measure of a household’s financial distress, or put differently, its “financial health”. This paper postulates that a household’s financial health can be measured using the concept of a casemix index; a metric currently used to assess the “sickness” (or the average severity of illnesses) of patient loads treated by hospitals. As an empirical illustration, we apply this casemix to a random sample of bankruptcy filers in Eastern Washington in 2007 and 2009 and assess whether specific types of bankruptcy filers have lower or higher levels of financial health. We find that financial health varies systematically by the county of residence. However, there are no significance differences in financial health based on the chapter of the U.S. Bankruptcy code under which the bankruptcy is filed.