One of the reasons there remains so much social stigma attached to the personal bankruptcy process is that the average person does not understand bankruptcy or how people end up in a situation where they need to file. It is quite common for people to assume that those who file for bankruptcy have been financially irresponsible. They may picture someone who spent an inappropriate amount of money on luxury goods or vacations that they couldn’t really afford.
However, the typical adult considering bankruptcy is an otherwise responsible individual whose finances have shifted. Successful professionals who earn competitive salaries are among those with the highest levels of revolving credit card debt in the United States and, therefore, are among those most likely to file for bankruptcy.
Why do those who earn more owe more?
People often use credit cards as a means of covering gaps in a household budget. When there are unexpected expenses, credit cards help families maintain the same standard of living while covering unusual expenses or adjusting to a short-term reduction in income. Those who work in more professional environments may have more expenses that they need to cover. It will cost more for them to clothe and groom themselves in many cases, as a professional work environment will impose stricter standards on appearance. Those with higher household incomes typically have higher cost-of-living expenses, which may then translate to higher balances on credit cards.
All it takes is a few months of economic uncertainty to leave high-earners at risk of bankruptcy. When numerous new costs arise at once or when someone’s income suddenly drops, they may end up struggling to pay their credit card balances off or even make the monthly minimum payment required to keep the account in good standing. Losing a job as an otherwise successful and responsible professional could mean someone finds themselves at risk of financial hardship and worried about their future.
Bankruptcy allows for the discharge of outstanding balances on credit cards and other unsecured debts. Those with higher incomes and more property may qualify for Chapter 13 bankruptcy, while those still without a job might benefit from a Chapter 7 filing while their income remains low.
Despite how many people view bankruptcy as a process required by those who are irresponsible or unemployed, it is often otherwise successful professionals who encounter hardship that need the support of bankruptcy to prevent short-term financial challenges from leading to long-term hardship. Learning more about financial habits and the true causes of bankruptcy may benefit those who feel opposed to filing because of the stigma traditionally associated with bankruptcy.