Fear of Bankruptcy Keeps Many People From Getting a Fresh Start


By Liz Weston

The mystery isn’t why so many people file for bankruptcy each year. It’s why more people don’t.

Each year, only a fraction of the Americans who could benefit financially from bankruptcy actually seek relief. Economists say some don’t file because collectors aren’t aggressively pursuing them, while others may strategically delay filing because bankruptcy could benefit them more down the road.

Many bankruptcy attorneys have a much simpler explanation: Fear, a lack of information and misplaced optimism keep people from getting a fresh start.

A Temporary Pause

About 14% of U.S. households — or roughly 17 million — owe more than they own, according to Federal Reserve Bank of New York estimates. Many of these households could benefit from having their debts wiped out, but fewer than 1% of U.S. households actually file for bankruptcy each year. Last year, there were 752,160 personal bankruptcy filings. Researchers refer to this gap as “missing bankruptcies” — the filings that could be happening, but aren’t.

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