A recent study by economists suggests that Chapter 13 debtors whose cases were confirmed and completed through discharge derive significant economic and health benefits from their filings as compared to Chapter 13 debtors whose cases were dismissed.
This report, published on the National Bureau of Economic Research – a professional organization for economists – compared 500,000 bankruptcy records with tax records and foreclosure records.
The study compared Chapter 13 debtors whose cases were approved and completed successfully to discharge to Chapter 13 debtors whose cases were dismissed. Successful Chapter 13 debtors:
- saw annual earnings 25% higher after bankruptcy – compared to their pre-bankruptcy earnings. Dismissed filers saw no increase in earnings
- had a higher employment rate
- had a 30% lower mortality rate compared to filers whose cases were dismissed
- were 19% less likely than dismissed filers to lose a home to foreclosure
The study authors suggest that successful Chapter 13 filers have an increased incentive to work and increased economic stability following receipt of bankruptcy protection.
This economics research projects conclusions are not surprising to me at all and I wonder if the study’s authors considered the reality of Chapter 13 filing in 2015:
- It is very difficult to maintain a Chapter 13 for five years and achieve a discharge. Twenty years ago, when I submitted a proposed Chapter 13 plan, I was able to build in a little room for unexpected developments.
- Now, Chapter 13 budgets are constrained by both the means test calculations and more demanding Chapter 13 trustees. I have seen many otherwise viable Chapter 13 plans undone by unforseen emergencies like a family illness, short term job layoff or emergency home repair.
Anyone who manages to make it through a 5 year plan no doubt did so because of diligence and perseverance, along with a little luck.
It is good to see that objective economic analysis proves that bankruptcy does have a positive impact on debtors as well as our economy as a whole. I often counsel my clients that bankruptcy functions as a necessary safety valve in a market economy and now there is proof that this is true.