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Study finds Chapter 13 plans beneficial to individuals and society

The words “filing bankruptcy” are almost always accompanied by negatives, but  when Will Dobbie (Princeton University) and Jae Song (Social Security Administration) studied the financial outcomes of debtors whose Chapter 13 plans were confirmed against those of debtors whose plans were not confirmed they came up with a number of positives.

Specifically, those who successfully followed a Chapter 13 protection plan increased their annual earnings over the first 10 years after filing.  There was also a 3.5 percent increase in employment among successful filers over the first five years after filing, and a nearly 3 percent increase in self-employment.

“These numbers are not surprising to me at all,” said Jeffrey Freedman, managing partner, Jeffrey Freedman Attorneys at Law. “People who are over their heads in debt become increasingly stressed out and depressed, which inhibits their ability to function at work.  Getting a fresh start affects every aspect of their lives, including improving their earnings.”

The two researchers also found decreases in the welfare benefits utilized by debtors in a Chapter 13 plan, and increases in contributions to retirement plans. During the first few years after filing there was also a 2 percent decrease in the mortality rate of filers (presumably due to the reduction in stress) particularly for those who were over age 60.

“When you feel that you are getting ahead you are a lot more motivated to work and improve your earnings, which in turn reduces the stress caused by economic instability,” Freedman said. “And, as the authors of this study conclude, there’s a positive rebound for the state and society as a whole when people who have been struggling are able to become fully participating, contributing members of our economy.”

The results of this study are not surprising to attorneys who handle bankruptcy filings, and they give lawmakers good reason to expand the options for consumer debt relief, which were extremely curtailed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.