Bankruptcy

Bankruptcy Filers Fight Morality Stigma

By Chris Kramer

Despite the vast body of research that indicates otherwise, many Americans still think of filing for bankruptcy as a sign of personal or moral weakness, rather than a needed safety net for people who truly cannot afford their bills.

An article from the Minneapolis Star-Tribune does an excellent job of addressing this common misconception about the protection bankruptcy offers. The writer was inspired to action, it seems, by a columnist from another publication who cited bankruptcy as proof of moral weakness.

His response includes these important facts about bankruptcy that reinforce its role in the U.S. economic system:

• Medical costs contribute to many bankruptcy filings. In fact, a study conducted in 2007 (link below) found that more than 60 percent of Americans who file for bankruptcy do so because of excessive medical bills. This is no surprise to anyone who has had difficulty getting health coverage or being able to afford insurance.
• Job loss and divorce play a huge role. Along with medical costs, these two factors account for the vast majority (about 90 percent) of all bankruptcy filings. And, if the current economy has done anything, it has reminded us how devastating job loss can be.
• People who file really need help. The article notes that the average Chapter 7 bankruptcy filer has an income of only $20,000 per year, which isn?t exactly a lot of money, and can easily disappear when an unexpected financial burden hits.
• Credit card companies are not your friends. Many people who file for bankruptcy have some or all of their unsecured debt discharged by the court?this debt often includes credit card bills. And, with high interest rates, fines and fees that these companies rake in, it?s hard to feel sorry for their loss of income.

The bottom line here is that bankruptcy exists to protect those who truly need its protections. Without it, the American economy would likely not flourish with as much innovation as it does today?thanks to the security that bankruptcy provides, entrepreneurs can take risks that they might not otherwise have.

Additional Resources

Medical Bankruptcy in the United States, 2007 (PDF)

Medical Bills and Bankruptcy (PDF)

Full post as published by The Bankruptcy Blog on April 24, 2010 (boomark / email).