How Can an Economic Recession Lead To Bankruptcy?
When you look at the numbers for right now and the previous ten years, you will see a continuous economic uptick. In fact, we are in the midst of the longest economic expansion in the history of the United States.
There are two things to keep in mind when we discuss this:
- US economic expansion does not mean everyone gains equally.
- There is always an economic slow-down.
Ten years ago, we were in the midst of the worst recession since the Great Depression. Most of you remember it and many of you were affected by it. It caused many Americans to seek bankruptcy protection.
Now, many economists predict another recession within the next year. What does that mean for you?
Today, we want to talk about some of the things that happen in our economy that are out of your control. Remember to always speak with a qualified Arizona bankruptcy attorney when making decisions about your financial future.
The “R” word nobody wants to discuss
We know that the economy treats everyone differently. When it is doing well overall, people can still suffer from debt. When the economy is going poorly, there will still be those who thrive.
- Many aspects of our financial lives are out of our control.
Many people think that those who file for bankruptcy did something wrong.
- “George must have been irresponsible with his loans.”
- “It’s Jenny’s fault she took out so much credit card debt.”
Listen, we realize that many people have to file for bankruptcy because they made some financial mistakes. However, we need to consider that the economy is not predictable, and the following can also happen:
- A person is laid off or loses their job unexpectedly.
- Tariffs put in place affect their small business.
- Natural disasters affect a person’s business or their trading partners.
- Global trade wars.
There is always an uptick in bankruptcy filings during a recession, which is classified by two consecutive quarters (6 months) of negative economic growth. A recession can lead to:
- A loss of jobs
- A decline in real income
- Lower consumer spending
- Slowdown in manufacturing
You get the point. These things have an impact. Imagine someone who has debt that they have been managing just fine suddenly out of a job. They were not irresponsible, but now they are in financial trouble.
Bankruptcy is an option
Bankruptcy does not represent failure. It is a legal route for people to take to get back on track. Depending on your situation, you may be eligible for Chapter 7 or Chapter 13 bankruptcy. This will be determined based on a means test. Generally, if you do not have a steady income or are unemployed, you will qualify for Chapter 7. If you have a job with a steady income, you will likely qualify for Chapter 13.
- Chapter 7 will allow for most of your debts to be discharged
- Chapter 13 will restructure your debts into a three to five-year payment plan
There are pros and cons to each type of bankruptcy, and an attorney will assist you in sorting through what this means for you.
What happens now?
There is no reason for you to let your debt cripple your life. If the situation gets overwhelming, please consider all of your options when it comes to getting back on firm financial footing. Plan for a recession ahead of time. Look at your finances and see where you could be vulnerable.
If you are considering filing for Chapter 7 or Chapter 13, please speak to a qualified and experienced Arizona bankruptcy attorney who will walk you through the entire process. It is time to take control of your situation.
Click here to find out about shared real property in bankruptcy.