The New York Times recently ran an op-ed simply titled, “Calculate Your Economic Risk.” It sounded like the Choose Your Own Adventure novel from the late 1970s—or bankruptcy risk scores that some creditors use. According to the op-ed’s authors, who are academics, it’s possible to estimate “economic risk” the same way as the risk of heart disease. By merely plugging in your race, education, marital status, and age, you can find out how likely you are to fall below the federally defined poverty line for one year. The authors compiled economic data of families going back to the late 1960s to create an epidemiological tool.
Playing with the calculator, the results individuals can find are quite striking. In general, education past high school greatly reduces the odds of spending a year in poverty, especially at younger age ranges. Being white or married also helps. The authors extended their estimates beyond what the calculator allows and found that three-fourths of all Americans will go below the poverty line at some point in their adult lives. They conclude that economic risk will intensify as the country diversifies and gateways to higher-paying jobs, i.e. college, becomes more expensive.
It’s easy to criticize the authors’ calculator as simplistic, and in some ways it is. The federal poverty line is a broad standard that isn’t so difficult for rural households to manage, but in New York City it’s certainly difficult to get by on. Moreover, the poverty measure exists to gauge which poor households to assist with government programs, so in a sense, it’s an odd measure to use. The calculator also doesn’t distinguish among households with or without children, who cost much more money and time than not.
The question though is how the likelihood of poverty relates to bankruptcy, and there the answer is more complicated. For one, the calculator doesn’t account for savings or other assets. Some households can weather time with low incomes better than others. Moreover, it’s just as important to consider the duration of poverty. Some low-income households have very little debt, so even if they fall below the poverty line, there isn’t much of a need to file bankruptcy. Although, one study found that the financial benefit of bankruptcy peaks at a low debt level. Credit expansion does a better job of predicting income than income does. Finally, bankruptcy is often triggered by non-income events, like divorces or serious medical problems.
Debtors should be concerned with how their risk of falling into poverty affects their ability to repay their bills. It’s best to act promptly before problems get worse. If that describes your situation, then you should talk to an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.