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Facing Challenges After Bankruptcy

By the end of the year, more than 1.6 million people are expected to have filed for bankruptcy protection in 2010. Many of these consumers have been financially devastated by the recession and chose to start fresh in the new year by filing for Chapter 7 bankruptcy. While filing for bankruptcy provides debtors with relief from worry and debt, it is important to keep in mind that there may be small challenges in life after bankruptcy.

Those who chose to file for bankruptcy should find comfort in numbers. Not only is the bankruptcy rate the highest it has been since 2005, a wider range of individuals are choosing to file for bankruptcy protection. Many individuals filing for bankruptcy do not hold college degrees and earn less than $30,000 a year. However, this dynamic is quickly shifting. Last year, more than one-fifth of debtors filing for bankruptcy held a college degree, representing a 4.1 percentage-point increase from 2006. Also, according to the Institute for Financial Literacy, 9.1 percent of debtors seeking bankruptcy protection in 2009 earned more than $60,000. This is compared to 5.5 percent in 2006.

While bankruptcy is a positive, life-altering event for most people, Katherine Porter, a visiting Harvard University professor, reminds debtors that there is the potential for some minor setbacks. While these challenges do not outweigh the benefits of bankruptcy protection, it is beneficial for debtors to understand what could be in store.

For example, some individuals experience some difficulties when attempting to obtain employment or housing after filing for bankruptcy. Some employers run credit checks on job candidates. According to a 2009 survey by the Society for Human Resource Management, 60 percent of corporate employers run credit checks. Still, only a quarter of these employers said a bankruptcy would make them unlikely to hire a candidate. Also, under federal law, public employers cannot deny employment to a candidate because of a bankruptcy.

Likewise, some individuals have run into difficulties while trying to find housing. While many landlords require credit checks, many have been much more flexible and understanding about bad credit and bankruptcies. Many debtors have successfully negotiated with landlords, who are seeing an increasing number of applicants with bankruptcies as a result of the economic downturn.

Source: The Wall Street Journal, "Rebuilding Lives After Bankruptcy," Sara Murray & Joe Light, 25 November 2010

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