Newsweek: "Bankrupt Way to Do Business"
Remember what I was saying about that now-famous Harvard University bankruptcy study? Guess what study shows up in the Newsweek article above.
From the article:
But according to a Harvard study of bankruptcy, the most thorough ever undertaken, [the debt] deadbeat is the exception. Nearly 95 percent of those who declare personal bankruptcy are swamped by job loss, family breakup, medical problems or some combination. For about half, it's the health-care costs that do them in.
What do you suppose the chances of avoiding bk might be if, say, a credit-card-debt-free individual or family (with some savings) encountered the [job loss / family breakup / medical problems / or combination] cited above? I'd bet on "decent."
The problem here is that that study places too much importance on the chronology of the debt, rather than the financial weight of various types and amounts of it. Suppose Doug Debtor accumulates $25k of credit card debt over 10 years, a manageable mortgage, an auto loan, and maybe $25k of student loans. Then he runs into a job loss which leaves him salary-impaired for four months, or hits a medical sitation that also causes him to take on $4k in medical debts over the last year. Due to cash flow problems, he heads for bankruptcy. The Harvard study (and most media outlets, apparently) blame Doug's financial downfall on "bad luck," and "misfortune," and the sharp whims of Fate. They blame the bk on the job loss and/or medical debts. It is fairly characteristic of a certain segment of our society which fosters "victimhood" at every turn.
I don't buy that argument for a second. No, I choose to wonder about Doug's lack of savings, his lack of foresight, and his lack of control over his spending. Maybe that is really what landed him in bankruptcy court. Plus perhaps his lack of short- and long-term disability insurance.
Think it might be that simple?