29 May More Americans choosing bankruptcy over poverty
In a recent Washington Post article, staff writer Nancy Trejos discovers that, despite the 2005 passage of a law that made it more difficult and expensive to file for personal bankruptcy, more Americans are choosing bankruptcy over destitution.
According to Harvard Law School professor Elizabeth Warren, the rise in bankruptcies is a response to fundamental problems with the economy: declining wages, inflation, inadequate health insurance, job instability. I would also add the freefalling housing market, the subprime mortgage catastrophe and credit crunch.
I have been filing bankruptcies for more than 15 years. Until last year, my typical client was someone who underwent a life changing event – divorce, illness, injury, unemployment, etc. – which caused a temporary or permanent change in income. Now, I meet with more and more people over their head in debt that got that way without any of these life-altering changes. Rather, the external changes to their environment (ie. the economy) are driving more middle class Americans to seek bankruptcy protection.
Since Congress has expressed no willingness to pass Senator Dick Durbin’s bill that would allow the reformation of residential mortgages by bankruptcy judges, things are going to get worse for the middle class over the next few years. Fortunately, whether trying to save a home in Chapter 13 or walking away from all of debt in Chapter 7, bankruptcy protection is still a viable option that affords the middle class a fresh financial start.
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