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Are bankruptcy filings actually helping economic recovery?

A recently published article may change the way that Michigan consumers think about personal bankruptcy. Many assume that filing for personal bankruptcy destabilizes the American economy, and contributes to the nation's economic woes. However, the argument is now being made that personal bankruptcy actions may in fact be assisting economic recovery, not hindering it.

The reasoning behind this assertion lies in a comparison between the American economy and that of six European nations. In countries in which bankruptcy is not readily available to individual consumers, a trend was found in which individual consumers are caught in a financial Catch-22. The combination of heavy debt, faltering employment options and no way to have that debt forgiven leads to financial hardship that is difficult to overcome.

In contrast, when an American consumer goes through the bankruptcy process, he or she is then able to emerge with a significantly reduced debt load. As a result, one can then re-enter the economy as a contributing party. This leads to a stronger economy, preserves jobs and allows the overall flow of goods and services to avoid becoming stagnant.

Based on this information, many Michigan consumers may want to adjust their beliefs concerning bankruptcy. Instead of viewing the process as a negative, the act of shedding old debt and becoming a functioning consumer should be viewed as a positive outcome. Furthermore, by eliminating concerns that one's decision to file could have negative economic consequences, individuals are free to determine if filing for personal bankruptcy is the right decision for their own unique debt scenario.

Source: Money News, "MarketWatch: Bankruptcies May Be Helping America Grow," John Morgan, Feb. 8, 2013

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