The Real Cost of Bankruptcy & How to Avoid It

This is a time of year when many examine their finances. Whether it be New Year's resolutions; after-holiday bills arriving; or money gifts received for Christmas, Hanukkah and/or Kwanzaa, money is on the agenda this time of year.

Unfortunately, for quite a few, this may mean contemplating filing for bankruptcy. FYI, according to a press release on uscourts.gov, there were almost 1,100,000 non-business bankruptcy filings in the fiscal year ending September 30, 2006.

The "Real" Cost of Bankruptcy

1. Bankruptcy's emotional toll: The potentiality of bankruptcy leads to feelings of depression, anxiety and overall worthlessness.

According to the 2005 report by the Personal Finance Employee Education Foundation, Summary of Research Findings on Financial Distress and Satisfaction, some 25% of working adults are seriously financially distressed (source: ethomasgardan.net).

The report also found that many live paycheck-to-paycheck, with no money left over for emergencies (those things that can lead to bankruptcy).

2. Bankruptcy's cost to the economy. The above-mentioned report also found that 40-50% of distressed workers reported that their health was impacted by their financial worries.

Medical: When you consider that over half of bankruptcy filings in the United States are caused by medical bills, you have to wonder if there is a causal link.

Worker Productivity: Thirty to 80% of the distressed workers reported above, reported spending time at their place of working dealing with their financial situation. This could be in the form of talking with creditors; discussing the problems with friends, family and/or co-workers; or handling paperwork dealing with their debt.

3. Bankruptcy's family Toll: When a borrower is on the verge of bankruptcy, overall family life tends to suffer. According to financial advisor Floyd Henderson, author of Living Within Your Means, " Financial problems are the leading causes of divorce in the United States, ahead of in-law problems and sex problems."