Reasons Why Consumers File Bankruptcy in the United States

Consumer bankruptcy is a serious financial decision that can have far-reaching consequences for individuals and families. According to a recent study, over 700,000 Americans filed for Chapter 7 or Chapter 13 bankruptcy protection in 2020 alone.

The reasons behind this surge in consumer bankruptcy filings are varied and complex. Some common causes include:

• High levels of debt: Many consumers struggle to keep up with monthly payments, leading to a cascade of credit card debt, car loans, and other financial obligations.
• Mortgage woes: Foreclosures and short sales have become increasingly common in recent years, leaving many homeowners unable to refinance or sell their properties.
• Crony capitalism: The financial industry has been accused of favoring large corporations over smaller businesses and individuals, leading to unfair practices and exploitation.

Furthermore, the COVID-19 pandemic has added another layer of complexity to consumer bankruptcy. The loss of income, unemployment benefits, and other forms of assistance have left many consumers struggling to make ends meet.

High levels of debt

Credit card debt, in particular, is a major contributor to consumer bankruptcy filings. A 2020 study found that individuals with credit card debt exceeding $10,000 were more likely to file for bankruptcy within five years.

Another significant factor contributing to high levels of debt is the growing reliance on payday lenders and other short-term loan providers. These businesses often prey on vulnerable consumers by charging exorbitant interest rates and fees.

Mortgage woes

The COVID-19 pandemic has accelerated the decline in mortgage markets, leading to a surge in foreclosures and short sales. According to the National Association of Realtors, over 12% of homes sold in 2020 were distressed properties – meaning they had been on the market for at least six months with no sale.

Additionally, the shift towards online mortgage applications has increased competition among lenders, making it harder for consumers to secure favorable terms and interest rates.

Crony capitalism

The financial industry has been accused of favoring large corporations over smaller businesses and individuals. This can lead to unfair practices and exploitation, particularly in industries such as healthcare and education.

For example, some hospitals have been accused of engaging in price-gouging and other forms of predatory billing, while medical device manufacturers have been linked to false advertising claims.

Government assistance

The COVID-19 pandemic has exacerbated existing systemic inequalities, leaving many individuals and families without access to adequate government assistance. This can make it difficult for them to weather financial storms, leading to increased bankruptcy filings.

For instance, the Supplemental Nutrition Assistance Program (SNAP) and Medicaid have been criticized for not providing sufficient support to those most in need, particularly low-income families and individuals with disabilities.

Lack of access to credit

A significant contributor to consumer bankruptcy is a lack of access to affordable credit. Many consumers are unable to obtain loans or credit cards due to limited income, high credit scores, or other factors.

This can lead to a vicious cycle of debt, as individuals are unable to pay their bills on time and are forced to seek help from credit counseling services or bankruptcy attorneys.

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