Wealthy Consumers Declare Bankruptcy, Too
Many Chicagoans might think that personal bankruptcy isn’t something that the wealthy need to think about. However, a recent article from Nasdaq.com emphasizes that, “when it comes to falling into financial distress, it turns out that the wealthy are more like the rest of us than you might think.” In other words, at one time or another, all of us may need to consider the benefits and costs of Chapter 7 or Chapter 13 bankruptcy.
Similar Reasons for Bankruptcy
Do wealthy Chicagoans file for bankruptcy for the same reason as middle-class residents? According to Todd Zywicki, a law professor at George Mason University, the “fundamental causes” for those with higher incomes aren’t much different from those who fall into lower income brackets. Thinking logically, it seems like someone who makes more money should have greater savings and flexibility in the event of a serious financial setback. However, many high-income Illinois residents had difficulties during the recession.
As Zywicki explains, the most common reason for bankruptcy—regardless of your income level—tends to be the same: “somebody with not a lot of savings gets an unexpected setback.” These setbacks tend to include “divorce or job loss, worsened by insufficient savings and an expensive lifestyle.” In other words, making more money often does not equate with saving more money. Indeed, experts suggest that many high-income Americans don’t save at an equal rate—they make lifestyle choices that often involve more spending than saving.
More Financial Problems for Average-Income Earners
It’s certainly true that people who earn less will face financial trouble more than those who earn above-average incomes. To be sure, RealtyTrac’s data about short sale and foreclosure home prices suggests that far more average- to low-income Chicagoans had to worry about losing their homes due to an inability to make their mortgage payments. In November 2014, “the median sale price of a home in foreclosure or owned by a bank was about $129,000.” According to RealtyTrac, that figure is “35 percent less than the [median] price of nondistressed residential properties.”
Foreclosure statistics don’t tell the whole story, however. For example, when we turn to statistics about Americans who seek credit counseling, we learn that more of these consumers tend to be above-average earners. The National Foundation for Credit Counseling reports that “the average household income of someone seeking credit counseling was $55,500 in the first half of 2014,” which is “higher than the national median household income of $51,939 in 2013.”
So how many above-average earners actually file for bankruptcy? The numbers aren’t entirely clear. Prior to Congress’s overhaul of U.S. bankruptcy laws, between 10-15 percent of consumer bankruptcies involved above-average earners, according to Zywicki. Now, it’s more likely that many of those consumers will “participate in debt repayment plans or other alternatives,” but personal bankruptcy remains an option.
Consumer bankruptcy can be an important option for Illinois residents to take control of substantial debts and seemingly unending credit card bills. If you have questions about filing for personal bankruptcy, you should contact an experienced Oak Park bankruptcy lawyer today.
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