American Consumers Exhaust Their Incomes
What leads Chicago residents to file for bankruptcy? Many factors can contribute to a Chapter 7 bankruptcy decision, including credit card debt and substantial medical bills. But do these consumers have underlying financial difficulties that make it difficult to pay off their debts? A recent article in the Chicago Tribune suggested that nearly half of all American households “exhaust their salaries,” meaning that there’s no money left at the end of the months for savings. And if there’s no money going into a savings account or other investments, those consumers won’t have any extra funds when an unexpected expense arises. And for some, consumer bankruptcy might be an answer.
Yearly Incomes Don’t Cover Annual Expenses
According to the article in the Chicago Tribune, the Federal Reserve recently has emphasized the solid growth of the American economy. However, data released by the Pew Charitable Trusts suggests that general economic growth doesn’t account for everyone. To be sure, “nearly half of U.S. households—47 percent—say they spend all of their income, go into debt, or dip into savings to meet their annual expenses.” In other words, yearly incomes for nearly half of all Americans aren’t enough to cover their financial needs during the year.
Diana Elliott, one of the co-authors of the Pew analysis, emphasized that a significant portion of American families simply “could not withstand a serious financial emergency.” As she explained, “that really is the contrast to the macroeconomic story of a recovering economy.”
While macroeconomic studies—like the information released by the Federal Reserve—can give us broad indicators, they’re insufficient when it comes to knowing about financial concerns and problems at the local level. In other words, as Elliott said, “macro indicators tell us a lot, but they don’t tell us what is specifically happening within families.”
Inflexible Budgets, High Expenses
There’s just not a lot of flexibility in the average family budget, which makes it particularly difficult to handle financial setbacks. For instance, if the average middle-class household has to face a “period of joblessness without any income,” it’s likely that the family would burn through its savings within only 21 days—less than a month. And even if that family dipped into retirement savings and “cashed in all their retirement investments to get by,” the Pew study suggests that they’d still be without enough money in only four months’ time.
For the typical middle-class family, yearly expenses—including housing, health care, and personal insurance—come in at just over $51,000. That’s a 6 percent increase over the last decades, adjusting for inflation. And the average income just hasn’t risen at the same rate. In particular, the housing crises and the unemployment numbers across the country resulted in limited incomes and financial troubles for many families in Illinois.
Here’s the bottom line: while the big picture suggests that the American economy is growing, individual families continue to struggle to make ends meet. For some of those families, consumer bankruptcy may be an option.
Many Chicagoans have learned that personal bankruptcy can be a useful tool to handle debt. You should always remember, however, that bankruptcy law is complex, and you shouldn’t handle your case on your own. Contact an experienced Oak Park bankruptcy attorney to learn more about your options.
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