They Went Broke and Lived Happily Ever After

Categories: Avoid Liens, Chapter 13, Foreclosure, Junior Mortgage, Modifications

I’ve been wondering recently about how my clients are doing long after their bankruptcy case ends and the debt is gone.  Then, I happened upon Bryan Fears’  (@fearsnachawati) article, File Bankruptcy and Live Longer and read a few positively surprising results that began to answer my questions about life after bankruptcy. Unfortunately, the article did not have a link to the source and study, but have no fear, I got that for you. The research article entitled, Debt Relief and Debtor Outcomes: Measuring the Effects of Consumer Bankruptcy Protection, found here, although a very technical and dry title, has some fabulous results for those who have filed bankruptcy.

The study focused on Chapter 13 Bankruptcy cases, which are a court approved repayment program for consumer debtors.  500,000 bankruptcy filings were studied and matched to administrative tax and foreclosure data to estimate the impact of Chapter 13 bankruptcy protection on subsequent outcomes.

“The Bankruptcy Act is…of public as well as private interest, in that it gives the honest bu unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.” -U.S. Supreme Court, Local Loan Co. v. Hunt, 292 U.S. 234 (1934)

Bankruptcy’s surprising effects on consumers:

  1. Increased earnings
  2. Incentive to work/Stay employed
  3. Live longer
  4. Lower stress
  5. Stop home foreclosure
  6. Stop wage garnishment & Bank levies
  7. Increased financial stability

In contrast, the study explains that if a case is Dismissed, the consumer experiences large and persistent drops in earning after filing bankruptcy. So, what does all this mean to someone looking to get out of debt?  It means that a court approved debt repayment program under Chapter 13 of the Bankruptcy Code provides control and financial stability (and a 0% interest on unsecured debts in repayment) by fixing the monthly repayment amount based on an affordable budget. One of bankruptcy’s best protections is to stop collections efforts, foreclosure, and wage garnishment.  Besides, who doesn’t want to increase their income, reduce stress and live longer?

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