It’s an important question for people considering filing New York bankruptcy. Put differently, how much do people typically expect to gain from bankruptcy? In a similar context, many times debtors will also want to know how common their situation is compared to other debtors’. If it’s more common, they might not feel that filing bankruptcy is a poor choice. Certainly, it’s best to discuss the situation with an experienced bankruptcy lawyer to explore your options rather than take the word of the crowd, but it’s also fair for the professionals to answer such questions.
Two researchers tried to do just that two years ago, and they published their preliminary findings on the Internet. Using an extensive dataset of Canadian bankruptcy filings, the authors simply calculated the amount of debt the debtors expected to discharge and then subtracted the amount of assets they stood to lose, leaving the “financial benefit” of bankruptcy.
(Canada’s system is similar to ours, but the salient point is the psychology behind the decision to file, not the minutia of comparative law. It also helps that its currency is close in value to the U.S. dollar, making monetary comparisons similar superficially.)
They found that the “dispersion” of financial benefits was quite large. In other words, people who stood to benefit significantly from filing were about as common among all filers as those who did not. There was of course, a spike among people who weren’t going to gain anything financially from bankruptcy. These largely represented people who were filing for non-monetary reasons, like halting a foreclosure. Overall, though, the value of most bankruptcies quickly peaked at $20,000 Canadian dollars and then trailed off, albeit slowly.
The authors were curious why the financial benefits of bankruptcy tended to be so low, figuring that people would be more likely to file the greater the financial benefits. They spent some effort trying to explain the finding by looking at nonfinancial benefits, like personal feelings about bankruptcy, but in all likelihood the reason is the dispersion of debt among the public means few people have large debts and few assets. It’s unlikely that such bankruptcies can occur.
The write-up of the study can be found here.
The takeaway, though, is that in Canada at least, and very likely the U.S. too, people who have less to gain financially from bankruptcy are more common among filers than people who have a higher prospective financial benefit. The message for those considering bankruptcy is that many people who have little in debt (and probably assets) do file bankruptcy. By contrast, the stereotype of the debtor with large, unpayable debts is less frequent than one might think, but they benefit too. Because debtors tend to have less to gain from bankruptcy, talking to an experienced bankruptcy lawyer shouldn’t cause that much anxiety. Many people in similar situations do.
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 adversary proceedings Bruce Weiner for a free initial consultation.
