Study: After Chapter 13, debtors' annual earnings increased

On behalf of The Rollins Law Firm posted in Chapter 13 on Thursday, June 18, 2015.

Have you ever wondered why we allow bankruptcy? As a policy matter, there are a number of reasons, including the fact that society had come to realize that debtors' prison not only persecuted debtors but also kept them from being able to repay their debts. Another important consideration, however, is that debt can actually make it a lot harder to make a living. People with low credit scores pay more to borrow needed money, of course, but they may also face employment consequences.

We can see the negative effects of unmanageable debt in ordinary life, but until now it has been hard to demonstrate that bankruptcy really helps people. We know that many people file bankruptcy and go on to thrive financially, but do others just get into trouble with debt over and over? How could we know whether any individual bankruptcy was the turning point in someone's life?

We can't interview everyone individually, but researchers from Harvard and the Social Security Administration came up with an interesting and useful way to gauge whether Chapter 13 bankruptcy really helps people get a fresh start. They compared two groups who were in relatively similar situations because they had both filed for Chapter 13 protection: those who successfully completed their Chapter 13 payment plans and those who could not.

Completing a Chapter 13 increases filers' earnings, employability and lifespan

The study found that the benefits of a successful Chapter 13 repayment plan were substantial. In the first five years after completing the plan, the researchers found the successful group enjoyed, on average:

  • A $5,012 increase in annual earnings
  • A 3.5-percent increase in their employment rate
  • A 1.9-percent decrease in their five-year mortality rate

When it came to the mortality rate, successful filers were 47.5 percent less likely to die within five years than those whose bankruptcy petitions had been dismissed.

If you're having trouble with debt, you may be dreading the possibility of bankruptcy. These statistics highlight what bankruptcy lawyers have known for years: There's no need for dread. Bankruptcy can be a responsible option that will have a positive impact on your life.

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