Make a Fresh Start After Bankruptcy

Lately, debt management has become part of everyday conversation, as more people fear defaulting on payments and desire to take control of their debts. Whether it is dealing with a job loss or trying to become budget-conscious, the word bankruptcy has become a more familiar term in the past few years than ever before.

Deborah Thorne, Ph.D., associate professor of sociology at Ohio University, is an expert on the underlying causes and effects of personal bankruptcy. From her research, she shared some of her findings to give us insight into debt and how it can affect different age groups, as well as ideas on how to conquer a financial struggle.

From your research, which type of debt have you found to be the most common and why?

Among people who file for bankruptcy, the most common types of debt are mortgage, medical, and credit card. But, more important, are the reasons for bankruptcy in the first place -- and the reasons are job loss, medical expenses, and divorce.

After bankruptcy, you say the myth of a "fresh start" is just that -- a myth. Could you give more explanation of this idea?

In 2006, I co-authored an article with professor Katherine Porter using data from the Consumer Bankruptcy Project. The data revealed that one year after filing bankruptcy, approximately 1 in 3 debtors were experiencing financial situations that were similar to, or worse than, the day they initially filed for bankruptcy! The leading factors behind this inability to financially rebound (or to experience a genuine financial fresh start) were persistent unemployment and underemployment, chronic illness or injury, and old age. The issue is that bankruptcy can effectively relieve people of unsustainable debts, but it just wasn't designed to solve some of the larger social issues that push many people into bankruptcy in the first place: no job, medical problems, and aging.

How does bankruptcy affect children?

I haven't studied this directly, but I do know that when parents are buried in debt, they report being considerably more impatient with their children and more likely to punish them more harshly. They report that once the file for bankruptcy and the pressure of the debts are gone, their relationships with their kids improve.

Are debt management companies legit? What suggestions can you offer to help a person who is struggling with consolidating their debt?

Some are. Many are not. If you are considering a debt management company, do your homework. Ask friends for recommendations. Be very, very cautious. There are many scams -- which, as far as I'm concerned, anyone who would prey on someone who is so financially desperate should be locked up.

Is there a specific age group that struggles the most from being in debt? Is there a certain reason for this?

Middle-aged folks are most likely to file bankruptcy, which makes sense because they are at the time in their lives where they are taking on a lot of risk: mortgage payments, kids, car payments, and so on. That said the group that has shown the greatest increase in likelihood of filing is folks 65 and over. This group is still a small piece of the pie, as far as who files for bankruptcy, but their likelihood of filing has increased significantly. This suggests that the safety nets that once protected them are not working terribly well.

Thank you, professor Thorne, for sharing your suggestions about bankruptcy and debt management.