Bankruptcy Introduction

There are two great myths about people who file bankruptcy. The first is that it's their fault. The truth is that circumstances, not poor choices, almost always explain the problem. For example, did you know that almost nine of every ten bankruptcies are caused by job loss, medical problems, family breakup or some combination of all three? Of every ten people who file bankruptcy, seven of them will attribute the problem to a job loss or income reduction, five of them will describe the cause as a medical problem and two of them cite divorce or family breakup. (Warren, et. al., The Two-Income Trap p. 81, n.31 (2003))

The second myth is that people who file bankruptcy are taking "the easy way out." But it's not true. At least one study found that for every person who files bankruptcy, seven more should do so. (Michelle J. White, "Why It Pays to File for Bankruptcy: A Critical Look at the Incentives Under U.S. Personal Bankruptcy Law and a Proposal for Change," 65 U. Chi. L. Rev. 685-732 (1998)) Of those who do file, the typical debtor owes more than one year's income in non-mortgage debt. Most have struggled with their debts for more than a year. Five of every ten have had their utilities or telephones turned off because of delinquent payment; six in ten have gone without medical care; and two in ten have gone without food. (Warren, et. al., The Two-Income Trap p.78 (2003))