A national survey reveals that many U.S. adults maintain spending and saving habits that could put them at bankruptcy risk. Yet considerable numbers are also pursuing debt-reduction strategies that demonstrate viable bankruptcy alternatives.
More than one in ten (12 percent) U.S. adults admitted to spending more than they make each month, according to research conducted by Harris Interactive® and commissioned by lawyers.com, the most comprehensive and trustworthy online resource for finding a lawyer from LexisNexis Martindale-Hubbell.
Moreover, one-third (34 percent) of adults say they would not be able to survive on savings for two months if they experienced an unexpected job loss, and a similar proportion, 37 percent, say they would not be able to maintain financial independence in the event of a separation or divorce.
Six percent of adults surveyed have already declared personal bankruptcy at least once.
"Spending more money than you earn and maintaining inadequate savings clearly puts people at increased risk for bankruptcy," said Alan Kopit, legal editor of lawyers.com. "Finding alternative ways to address the problem is important."
Bankruptcy Alternatives Being Explored
Despite evidence suggesting vulnerability to bankruptcy, the survey also reveals that many adults are taking steps to reduce the possibility that they will need to take that route.
Nearly one in four (22 percent) adults has consolidated debts into a single loan, and 15 percent have worked out a payment plan with creditors due to their inability to pay off a debt. Six percent have sought debt assistance from a nonprofit agency, and the same percentage has consulted an attorney about personal financial troubles.
"Bankruptcy is generally an absolute last resort," said Kopit, "and it's important that people take advantage of alternative debt reduction strategies.
"Negotiating payment plans with creditors, consolidating debt and seeking out debt assistance from reputable professionals, including those affiliated with the National Foundation for Credit Counseling, are all activities individuals should seriously review before bankruptcy even becomes a consideration," Kopit continued.
"Attorneys experienced in debt and bankruptcy can help individuals explore these options and weigh the pros and cons of bankruptcy in their particular situation," he said.
Myths about Personal Bankruptcy Persist
Despite the ubiquity of personal bankruptcy filings (over 1.5 million non-business bankruptcies were filed in 2004 alone), many people remain misinformed about the impact personal bankruptcy will have on their financial future.
For example, one in five (21 percent) adults did not know that bankruptcy filings are in public records that can be accessed by anyone. Close to two in five (38 percent) did not know that creditors, including mortgage lenders, are less likely to work with people who have filed for bankruptcy.
"People may think of bankruptcy as a "cure-all" that simply wipes away their debts and lets them start their financial lives completely fresh," said Kopit. "In fact, declaring bankruptcy can have serious long-term effects on one's financial situation. Avoiding declaring bankruptcy by pursuing alternatives may ultimately put people on more sound financial footing."
Alan Kopit is the legal editor of lawyers.com and partner at the Cleveland-based law firm Hahn Loeser & Parks LLP. He has contributed columns to lawyers.com, focusing on consumer and small business legal issues and his media appearances include MSNBC, CNBC, CNNfn, Bloomberg Television, WEWS-TV Cleveland (ABC), WKYC-TV Cleveland (NBC), WKBC-TV Houston (NBC), Bloomberg Radio, and legal contributor to NBC-TV's Today show. For more information about Alan Kopit, please see his biography.
Harris Interactive® conducted the survey for LexisNexis Martindale-Hubbell's lawyers.com by telephone between February 24 and 27, 2005 among a nationwide cross section of 1,034 U.S. adults ages 18 and over. Figures for age, sex, race, and region were weighted where necessary to align them with their actual proportions in the population. In theory, with a probability sample of this size, one can say with 95 percent certainty that the results have a sampling error of plus or minus 3 percentage points.
LexisNexis Martindale-Hubbell's lawyers.com is the leading lawyer directory on the Web, providing access to more than 440,000 attorneys and law firms nationwide. More than one million searches per month are conducted at lawyers.com by consumers and business people in search of the right lawyer for their needs.