4 Reasons Bankruptcy Is Good for Our Economy - John T. Orcutt - Better Finances and Recession Busting Behavior Result from Going Bankrupt

4 Reasons Bankruptcy Is Good for Our Economy

Submitted by Rachel R on Wed, 02/13/2013 - 5:58pm

4 Reasons Bankruptcy Is Good for Our Economy

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MarketWatch (a DowJones company) reported Friday that access to personal bankruptcy is good for America. For the layperson, this may seem contrary to logic, but if DowJones says it’s so, it must be, right? But how can people not paying their bills be a good thing? If you’re in debt and are considering bankruptcy, you may be worried that you are doing a bad thing by considering this option. But perhaps this will make you feel better about your situation and more optimistic about choosing to file for bankruptcy!

1) Encourages Positive Spending

When you are drowning in debt, all of your money goes to servicing that debt. But paying that debt doesn’t necessarily translate to money in circulation helping our economy – in fact it may mean quite the opposite. A big chunk of the debt that’s discharged in bankruptcy is credit card debt. When you’re paying 20% interest or more, the creditor has long been paid back for whatever goods and services you charged as well as a healthy chunk of profits. Credit card companies borrow from public funds at 3% and make billions on the spread each year. The remaining payments are pure profit and in our current recession, banks are not lending, they are hoarding.

Free from the onerous monthly payments to your credit card company, you’ll no doubt still be spending, but on food, clothing, services and other outlets. These are funds kept in circulation. Spending at the grocery store, retail store or restaurant keeps our economy on the upswing, keeps employers hiring and moves us closer back to prosperity as a country.

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2) Encourages a Realistic Lifestyle

If you bought a larger than needed home back when interest rates were low and you could afford a bigger or more expensive home, you may now find yourself stuck with a mortgage payment you can ill afford on a property worth drastically less than your mortgage value. You shouldn’t kick yourself over this too much – millions of people bought in this manner with no idea the real estate slump was in the offing or how it would affect them.

If you’re upside down on your mortgage, selling may be impossible. Bankruptcy will very likely mean you have to move (and rent), but you won’t have a massive mortgage monkey on your back anymore. This means you can start saving up for a down payment on a house you can better afford. People coming out of bankruptcy are usually more cautious and conservative about buying their next home post-bankruptcy.

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3) Encourages Better Management of Remaining Debt

If you file for a Chapter 13 bankruptcy, you may be able to keep your home and just get a more manageable grip on your installment payments. Unfortunately, often the payments for this option can be difficult to maintain. But in a Chapter 7 bankruptcy, you will be free of credit card debt, personal loans and medical bills. You will likely not be able to keep your home, but this may not be a bad thing.

Student and car loans typically remain after a bankruptcy and debtors are working hard to pay off that debt. Getting loose from debt where the holder has already profited ten-fold (or more) allows you to better manage your remaining debt and stay on track while rebuilding your credit. This is good for you and for the economy.

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4) Encourages Full Employment

If you are working only to service your debt and can’t see an end in sight, you have little incentive to work toward advancement. But if you opt for bankruptcy and your debt is culled to a manageable level, you once again have a future (financial and otherwise) to look forward to. This encourages people who are underemployed to seek full employment and encourages jobseekers to get busy getting employed. The more people we have fully employed, the better off our economy and our lives will be.

In Europe, as in the United States, the economy has taken a downturn. But while America is pulling out of its recession, countries where bankruptcy is not a readily available option continue to founder. In the US, roughly 450 out of 100,000 people file bankruptcy. But France, Germany, Finland, the Netherlands and Austria have less than one-fourth that number of filings. These are nations that are not on a steady path to economic recovery and the lack of adequate consumer bankruptcy options could be a cause. Consumer struggles are weighing down recovery efforts.

If you are overwhelmed by debt and think there’s no way out, think again. Filing bankruptcy is not giving up on yourself or your debt – it’s simply an acknowledgment that you need help. Think of it as pruning a plant – cutting back old growth allows healthy new growth to break through and prosper. If you’re in debt and struggling to make payments, contact a reputable, qualified bankruptcy attorney to discuss your situation and your options.

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