credit score myths debunked

Dispelling myths about the causes of bankruptcy

Debunking myths why people in bankruptcy

A common misconception about bankruptcy is that people who declare bankruptcy are irresponsible with their finances, or reckless debt they could not afford. Despite these circumstances are certainly a factor in some failures, Recent studies and analysis show that most bankruptcies are precipitated by causes beyond the control of a person. The leading causes of bankruptcy are death, divorce and unemployment.

A recent 2009 study by a team of researchers from the Harvard Law School, Harvard Medical School and the University of Ohio, was published in the American Journal of Medicine, and reveals important information about why people file for bankruptcy. "Using a conservative definition, 62.1 percent of all bankruptcies in 2007 were physicians, 92 percent of medical debtors had medical bills over $ 5,000, or 10 percent of family income before taxes "Wrote the researchers. More failures directly caused by medical bills, other considerations beyond the control of a debtor may also cause serious financial constraints and push a person into bankruptcy. These include increased health insurance premiums or franchises.

Dramatic stories in the media details of a serious and increasing layoffs and widespread unemployment and underemployment. Jobs that previously represented a steady income current and reliable for families are now on the block. The latest figures from the U.S. Office of Labor Statistics show that unemployment currently hovers 9.4%. The latest figures on unemployment in Oregon, as reported by the Department of Education estimates of employment of 12.4%. These figures do not include underemployment or the salary that is below a sustainable family budget.

A third cause of bankruptcies are predatory lending practices, including falsified mortgage products and the rapid change in credit terms unilaterally by some credit card companies. In many documented cases predatory lending, consumers were misled into mortgages that were significantly different from the terms agreed. In some cases, borrowers are presented with new terms at closing and pressure to sign to retain the sale fell through. In other cases, outright fraud took place, and loan documents were forged or altered after the fact.

Many credit card users have seen interest rates increased unilaterally by their lenders. In 2008, credit ratings have fallen in all fields in light of deteriorating financial conditions. For example, lenders unilaterally reduce credit lines to limit their exposure. As a result, consumers had a higher proportion of their credit lines, causing their credit scores drop. Started a feedback loop, in which creditors reduce the credit limits in response to the credit score Additional lower, increasing the interest rate thereafter.

While some people spend beyond their means and incur debt obligations they could not afford to pay, there is growing evidence that most bankruptcies are due to circumstances beyond the control of the debtor. These include medical expenses and expenses, job loss, and unilateral changes to the debt obligations of creditors. In the current economic crisis is more appropriate.

About the Author

Justin M. Baxter
Baxter & Baxter, LLP
8835 SW Canyon Lane, Suite 130
Portland, Oregon USA
Bankruptcy Attorney