The Truth About Bankruptcy

In this post over at Frugal Dad, guest blogger Neal Frankle asked this question: “Is it wrong to ask to have your debts forgiven?” In his post he mentions actor Stephen Baldwin, a born-again Christian whose income has dried up  as a result of his own choices to refuse roles based on his new-found faith, and who now is in bankruptcy.

The number one reason for bankruptcy is medical bills. The number is over 60%. Among those, more than three quarters have medical insurance. As for the rest, all report some sort of misfortune, most commonly a job loss or other decline in income. Only 9% of bankruptcy filers reported no misfortune.


While I’ve no doubt that there are some people who are irresponsible and rack up a lot of debt, and then instead of paying it back, file bankruptcy. People like this are in a very small minority, however.  Using Stephen Baldwin, whose current troubles are definitely a matter of personal choice as an example of the common person filing bankruptcy is definitely not representative of this group.

The bankruptcy laws were also amended in 2005 to make it harder and more expensive for people to file for Chapter 7 bankruptcy. Those who have sufficient income to repay at least part of their debts must enter into a Chapter 13 repayment plan. In addition, before filing, all must go to credit counseling.

I do not like the changes to the law as I am not among those who believe that bankruptcy is being widely abused. The changes to the law were made at the behest of the financial services lobby and help no one but the banks.

It saddens me to see so many people parroting the line that people who go bankrupt must be financially irresponsible deadbeats unwilling to live up to their responsibilities. This view is wrong because it does not match the facts. If you are among those who believe this, I urge you to so some research and find out for yourself. 

Having said that,  I do admire anyone who can face hard times and still manage to pay their debts. But, I also recognize that for every person who is able to do just that, 10 others won’t…not because they’re deadbeats or spendthrifts with no sense of personal responsibility, but because they’re just not as fortunate. Yes, luck and timing play a part.

The vast majority of borrowers intend to pay back what they owe. But life happens. Someone gets sick and the medical bills pile up, or worse yet, they also are unable to work because of their illness and their income declines to boot. Try as they might, their debts pile up and no matter what they do, they can’t get ahead of them, although they do try for a while. This is the typical bankrupt.

Times are also different. Never before have we been in a situation where incomes are stagnant yet the cost of living continues to rise. Never have we been in a situation where there are so few jobs and where the average duration of unemployment exceeds six months. (Except maybe during the Great Depression.) 

We don’t live in a vacuum, where all variables remain constant, and therefore judging others for being unable to do what you were able to is wrong.

I’d like to know what you think. Those of you have managed to face hard times and get out of debt at the same time, I’d like to know how you did it.

You can leave a response, or trackback from your own site.

2 Responses to “The Truth About Bankruptcy”

  1. Hi, I just discovered your blog via google. Your post is truly relevant to my life at this moment, and I’m really happy I discovered your website.

  2. Hallo, this is a amazing article, keep up the good work. How about more articles about credit card and payments.

Leave a Reply

You must be logged in to post a comment.

Buy VerizonCell Phones and Save. | Thanks to Bank Rates & Reviews, CD Rates and UK Loan
Easy AdSense by Unreal