How Bankruptcy affects Spouse, Job, Credit, and Cosigners

chapter 7 hearing

Bankruptcy tends to save marriages jobs credit and cosigners.  Debt hurts these relationships.

If you want to know how bankruptcy can save a marriage, protect a spouse or cosigner, prevent a job loss and restore credit it is in the last paragraph. But the effects of debt are important to know first. If you ever wondered what the effect of debt is we can tell you. For the average $45,000 wage earner just a $10,000 increase in debt makes your marriage suffer, you are about 25% more likely to divorce and the quality of your marriage declines. Your ability to earn a decent wage, obtain a home and other wealth indicators suffer. Society suffers because you are far less likely to share and give to others. Your overall happiness suffers. I don’t make this up here are the scientific studies.

All debt is bad in its effects on your personal wealth and the family. Student loans have the least effect on a marriage. It is the debt which is least likely to garnish your wages or attach a home. Student loans normally have the lowest interest rates. Student loans are the form of debt which least threatens the family and is most likely to increases income. But even student loans which is the least destructive type of debt harms you and your family. Here are the facts:

Debt makes your marriage suffer.  Bankruptcy relieves the stress

For many people bankruptcy is a breath of fresh air which eliminates the stress brought on by debt.  Debt has major consequences for marriages, jobs personal wealth, credit and cosigners. Here are the facts. The worse the debt, the more the strain on the marriage and more likely a spouse will divorce whether or not the debt was your fault. Even if the debt was for a good purpose if you are in debt you are more likely to divorce. Dora Gicheva at University of North Carolina at Greensboro did a study that showed even a small student debt dramatically increases the long-term probability of marriage ending in divorce and decreases the likelihood that anyone would marry you. Gicheva’s study showed that just an additional $10,000 in loans decreases the probability of marriage by at least 7 percentage points. Going from owing 0 to 10,000 in student loans increases your chance of a divorce from about 47% to about 54%. This is a 15% increase in divorce over just a 100 dollars a month debt that is not even being paid in 40% of American homes for the least stressful type of debt. Just the stress increases the number of divorces whether or not it is paid. If you take on more debt your chance of a divorce becomes a guarantee.

Second Debt causes your happiness, ability to earn and net worth drops.

Using the same data from a Brookings study Richard Fry of Pew proved, “households headed by a young, college-educated adult without any student debt obligations have seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).” Students who take out loans are less satisfied with their financial situation compared to people without loans. The same results have been investigated and found by the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of New York in another study found young student debtors cannot or will not purchase homes and cars.

Debt makes a less charitable society:

If you put people into debt charities and society suffer. People can’t afford to give to others or feel that cant afford it. They simply become less charitable.  A famous study on student debt by Jesse Rothstein of the University of California, Berkeley, and Cecilia Elena Rouse of Princeton looked at the result of replacing loans with grants. It found “debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid ‘public interest’ jobs.”

Bankruptcy is a tool, it isn’t the disease.

When people get old their bones develop osteoporosis. Their hips often shatter and then the person falls. The person that suffers from this type of injury thinks that they fell and then broke the hip. But it does not happen in that order. Instead the hip breaks creating the fall. People often claim they lost their home due to a bankruptcy. This is almost always a lie. The lost the home because they could not or would not pay the mortgage (debt). I have never seen or heard of a person losing their home because of a bankruptcy and I have practiced bankruptcy cases for over 25 years in thousands of cases. Often the bankruptcy allows the homeowner the ability to catch the mortgage up and save the home or modify the mortgage making it more affordable. When a homeowner loses a home what happens is they have often lost a job or now refuse to pay because the mortgage is more than the value of the home.

Bankruptcy destroys debt. It is like using surgery or nuclear medicine against cancer. It quickly destroys the debt and removes the effects of debt. The problem with bankruptcy is that it cannot remove the cause of the disease. Debt and poverty is a mental habit of spending. Debt and poverty is caused by people spending first, then paying bills and investing and saving last. The disease or cancer will return as long as anyone lives that lifestyle. Read the Millionaire mind to discover how common everyday people like teachers and bus drivers retire wealthy due to proper mental programming and attitudes towards budgeting. Or listen to Dave Ramsey.

I used to often hear from Dave Ramsey about his horrible bankruptcy experience. He lost several homes and a business. Much of the problem he went through was because of a change in management of a bank. A new manager called his notes due. Bankruptcy did not cause his business failure. Instead the bankruptcy he went through was just a tool of an attorney who attempted to repair his financial situation. Some attorneys are better with this tool than others. Some attorneys are real masters at it. Others are less masterful. But in the thousands of cases I have filed and seen I don’t know of even one bankruptcy that has caused the problems that lead to divorce and poverty. Debt causes the problems. If poor financial habits caused the problem I can recommend Dave Ramsey to help you reprogram the viruses of the mind that cause poverty and debt dependency.

There is a bankruptcy section that prevents job discrimination with present employers but not future employers. Chapter 13 plans can protect cosigners and spouses. You can rebuild credit by paying on time after the discharge in bankruptcy, within 6 months to a year you should be able to buy a car and a home within 2 years. And your marriage can be happy again. But please don’t blame the kitchen knife for the murder. Debt causes the problems. Bankruptcy cures the problems.

To use a metaphor: If you got a stomach virus don’t blame the pepto bismol which you took to cure the belly ache.