Bankruptcy Code Helps Consumers Avoid Economic Inequality

Is filing for consumer bankruptcy a good option for debtors?  For many Americans who are suffering financially, Chapter 7 or Chapter 13 bankruptcy might be able to help alleviate the stress associated with multiple credit card payments, massive medical bills, and other substantial debts.  Indeed, a recent article in Fortune Magazine suggests that the federal bankruptcy code may actually “help the poor and stem the tide of rising inequality.”
Consumer bankruptcy can be very complicated, and it’s important to talk with an experienced Chicago bankruptcy lawyer before you file.  Contact the Emerson Law Firm today to learn more about how we can help.
New Study Says Bankruptcy Filers Live Longer and Earn More Money
The federal government has several entitlement programs like Social Security, Medicare, and Medicaid that are intended to help ease the economic inequalities that exist in our country.  However, a recent working paper released by the National Bureau of Economic Research suggests that the bankruptcy code might have similar effects.
The researchers, Will Dobbie and Jae Song, looked at 500,000 bankruptcy filings across the country “to measure the effect of bankruptcy laws on consumers.”  What did they find?  On the whole, the researchers discovered that “the bankruptcy code is an incredibly effective social insurance policy.”  To be sure, consumers who filed for bankruptcy appear to have lived longer than consumers who struggled with debt.  In addition, people who chose bankruptcy actually ended up making more money in the long run than those who faced debts without bankruptcy protection.  Some of the statistics concerning a Chapter 13 bankruptcy approval were as follows:
·      Annual earnings increased by $5,562
·      Five-year mortality decreased by 1.2 percentage points
·      Five-year foreclosure rates decreased by 19.1 percentage points.
How can filing for bankruptcy lead to higher earnings and a better quality of life?  According to Dobbie and Song, bankruptcy protection can help employees to earn more money by “removing the disincentive to work resulting from creditors garnishing workers’ paychecks.”  In other words, when a debtor knows that her wages are garnished such that she’s giving a large percentage of her paycheck to a creditor, she might “decide to stop working altogether.”
And when it comes to longer lives and a better life quality, the researchers believe that bankruptcy allows debtors to deal with debt issues head-on—as opposed to “letting them fester,” as the researchers said—which can reduce the stress and anxiety associated with a significant debt burden.
Bankruptcy Code as Social Insurance?
Why would the researchers describe the bankruptcy code as a social insurance program?  In short, it’s a code that most of us hope we won’t have to use, but we’re glad we have the option for bankruptcy protection in case we need it.  But do such “social insurance” programs end up costing those of us who don’t need them?
Some people do, in fact, abuse insurance programs.  In response to worries about consumers simply filing for bankruptcy to avoid paying their debts, lawmakers passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).  This law has made it more difficult to file for bankruptcy, but it hasn’t made it impossible to seek bankruptcy protection.
If you have questions about whether bankruptcy protection could be right for your situation, contact an experienced Oak Park bankruptcy attorney.  We can speak with you today.
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