A recently released study concludes people who have filed for bankruptcy not only make more money over the course of their lives, but they also live longer than people who were denied bankruptcy protection.
The paper, released by economists Will Dobbie and Jae Song of the National Bureau of Economic Research, took a closer look at 500,000 U.S. bankruptcy filings in order to gauge the effect of bankruptcy law on consumers. What they found was that bankruptcy code is actually a very effective social insurance policy. A consumer’s approval for Chapter 13 bankruptcy protection, “increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points.”
Legal System Doing its Part
While it’s obvious that government programs such as Social Security and Medicare help in raising the incomes of the least fortunate, this study concludes that the legal system can also play its part – via bankruptcy.
How Bankruptcy Plays a Part
Authors of the study argue bankruptcy protection helps workers to earn more through the removal of the ability of a creditor to garnish one’s paychecks. This in turn, keeps them working – rather than disincentive them from working. Basically, if person’s wages are garnished so much that they don’t see any point in continuing work, then they often turn to not working at all. The study also showed that bankruptcy can help people live longer simply because of stress relief – debt problems are dealt with head on – rather than letting them fester. Chapter 13 bankruptcy specifically allows people to stay in their homes and avoid foreclosure. While most do not have to file for bankruptcy, it can be looked at as a social insurance program that can be used in the worst of cases.