Roseville MN Bankruptcy Attorney Reveals The Social Cost Of Debt

In my last blog, Can I File Bankruptcy In MN And Keep My House Or Car, I discussed the social cost of debt - that is, what happens to our society as a whole when individuals find themselves in a financial position in which they cannot manage the debt they have incurred. I discussed the approaches people take when debt has gotten out of control. I discussed in detail the approach of essentially doing nothing to take the initiative to resolve the debt problem, and the cost to the individual who takes this approach and to society as a whole. At the end of the blog, I started to discuss the social cost of taking the most common approach to resolving difficult debt issues: increasing income and decreasing expenses to allow a more significant pay-down of debt out of a person’s monthly budget. 

As I wrote, this approach is a sensible one, since it shows a recognition that debt that has gotten too high threatens an individual’s well-being, The person who knows this is a problem and takes steps to correct the problem should be commended. But as I discussed in the previous blog, in order for this approach to work, certain factors, not the least of which is the ability of an individual to earn additional income, have to be present. Unfortunately, in many cases, individuals do not have the ability to increase income significantly enough to make a positive difference. And I wrote that there are costs to working more/earning more to the person’s health.

When YOU Gain, Someone else loses

But there’s more to the social cost of earning more/spending less in Roseville. One issue has to do with employment. When someone who already works a full-time job works additional overtime at his primary job, or takes a second job, that individual is meeting his goal of increasing his income. But in order to do that, he has become a more-than-full-time worker. He has, in essence, taken a job, or additional job hours away from another individual. When a highly-trained individual takes a second job that does not require a significant amount of skill, he is depriving another, less-skilled worker a position where the less-skilled worker could gain job experience. By taking that job, the individual who needs to increase income to meet debt problems is reducing the chance for another worker to earn money that could be spent in the local economy, or used for education or needed services. If our aim as a society is to have as many employable people employed, and have as few people who want a job without a job, then the practice of picking up extra hours, or finding another job by the person with debt issues, has a cost to society.

You Must Sacrifice Your Relationships To Work More 

Another social cost to debt, and one that is not often thought of, has to do with personal and family relationships. Let’s take as an example an “intact” family of four - mom and dad with two elementary school-age children. If the family is facing significant debt problems, and the husband and wife decide that the best course of action is to generate more income and spend less, then it stands to reason that one or both of the parents are going to be working more hours - either at their job site, or at home. The extra hours mean that the husband and wife will see each other less, and that they will see their children less. There will be less time together as a family and the children will spend more time in day care.

Cost of Day Care Increases

Besides the expense that “extra” day care brings, there are other, less obvious costs associated with this. Since the parents will have less time to care for their children, their relationship with their children will be changed. This does not mean that working extra hours will necessarily result in child-raising difficulties, but it certainly increases the chances that the bond between the children and at least one of the parents will be different, and possibly less than ideal.

Time Spent With Loved Ones Decreases 

And the relationship between husband and wife will be tested in this scenario also assuming that increased work hours means less time spent with each other. Money problems often trigger relationship problems - particularly if one of the spouses is critical of the other spouse’s financial behavior. Working more to resolve financial issues that perhaps one spouse doesn’t believe is their fault is a good predictor of a build-up of resentment from one spouse to the other.
Even if the spouses take the approach that they are in this financial bind together, the additional hours working can take its toll on a relationship where the spouses simply don’t see each other very often. It is difficult to maintain a close relationship when there is not a lot of time for each other, and it is made more difficult when one or both spouses are tired at the end of a long day of work. Again, working more and spending less to help pay down debt in a sensible way does not mean that relationships will automatically suffer - it simply sets the stage for difficulty and it is the type of difficulty that I see on a regular basis among clients in my practice.

There Is A Social Cost To Spending Less

Spending less money as a strategy for paying down debt is almost always a necessary piece of the pay-down puzzle. There is a social cost to spending less. In my previous blog I discussed what happens to the person who simply allows collection efforts to go through - the person who decides to have their wages garnished or bank accounts levied. These people are going to have to make do with less as far as spending is concerned. The same problem presents itself to the work more/spend less person. New purchases, repairs and maintenance will most likely be deferred. And certainly there won’t be any “extra” spending. For adults, that may not be a bad thing - most of my clients are pleasantly surprised at their adjustment to reduced spending - but there are some expenses that are cut out of necessity that are difficult to do without.

For couples with school-age children, reduction in spending that directly affects the children can be problematic. The internet might be seen as an expensive time-waster for a lot of people, but for school-age children, it is a valuable tool for school success. So “unplugging” the internet - while it might make a lot of sense financially - has a definite cost when there are children involved. The lack of an internet connection can also create problems with adults’s job productivity. So decreasing expenses by disconnecting the internet might end up costing adults income. The same is true, although probably to a lesser extent, if a family makes a decision to disconnect cable tv. Families might also think about reducing the number, and the expense of cell phones. While that is unlikely to cause academic issues, certainly personal security is reduced, at least somewhat, if family members do not have cell phones.

Systematically decreasing expenses usually involves eliminating, or never starting, to spend money on activities or enrichment programs for children - such as recreation, sports, music or drama programs. It is unlikely that any of these types of programs are essential for a child’s development. However, children involved in activities and sports tend to do better socially and academically than their peers who do not participate in programs like this.
Working more to increase income and intentionally and systematically reducing household spending is a sensible approach to retiring debt. But there are costs - either actual or potential - in choosing this course of action. Personal health and family and marital relationships can be strained by the commitment needed to increase income. And quality of life and personal and educational development can be limited if household spending is reduced.

There is A Social Cost for Filing Bankruptcy in Minnesota 

The third option people with unmanageable debt choose is to contact a Roseville MN Bankruptcy Attorney File a Chapter 7 or Chapter 13 Bankruptcy case. Most of the people who file a bankruptcy case have seriously considered either simply being collected on by their creditors or the combination of increased income and reduced spending to aggressively pay down debt. But for the people who choose to file a bankruptcy case, those options are not workable. So they choose to resolve their debt issues by filing a bankruptcy case. While this might be the best course of action for them, filing a bankruptcy case comes at a cost.

Lenders Charge Higher Interest Rates 

For people who choose to file a bankruptcy case, the most obvious negative consequence is the resulting lack of access to credit. Most people who file a bankruptcy case at Kain & Scott in Roseville find that their monthly budget “loosens” since they no longer have to pay interest charges on credit cards and personal loans. However, a person who faces some unexpected expense shortly after filing a bankruptcy case can find himself in a position where he does not have the cash to pay the expense, and no or restricted ability to access credit. So the personal cost of filing bankruptcy can be felt strongly by people with unexpected expenses post-filing. The social cost of individuals filing bankruptcy has to do with the cost of borrowing money. Many market forces combine to determine interest rates, but one of the factors is the cost of defaults to credit issuers. Lenders are not in business to lose money, so they try to anticipate the number of accounts that will default on payments and anticipate the amount that will not be paid. Lenders will pass along these costs to consumers, which can result in higher interest rates for other borrowers.

However it is also true that almost every lender insures the loans that they make. So if there is a default on the loan, a lender has an option to file a claim with its insurer to cover all or most of the defaulted loan payments. So the cost of borrowing money to consumers has an indirect relation to defaults, not because lenders are attempting to make up losses, but more to pay the cost of the insurance premiums the lenders face.

You Might Feel Defeated

Another cost of filing a bankruptcy is more personal. Me and my fellow Roseville MN Bankruptcy Lawyers know of the stigma that many people feel they will have if they file a bankruptcy case. People feel defeated by their debt when they make the decision to seek legal help to their debt issues. However, that stigma is self-induced. While a person who filed a bankruptcy will have challenges in accessing credit for a period of time after the bankruptcy case is filed, there are legal protections against discriminating against people who have filed a bankruptcy case in employment and the issuance of student loans.

A very common anxiety many clients hold is that local care providers - usually medical providers - will decline to see them if they file a bankruptcy case and include the care providers’s bill in the bankruptcy. However, this anxiety is usually unfounded. While no private care provider is required to see a patient, the experience of our clients is that they can continue to see the doctors, nurses, dentists and therapists that they were seeing before their case was filed. This is not the experience of everyone who files a bankruptcy case, but it is the experience of a vast majority of the people who do so.

At The End of THe Day... The BEnefits Of Bankruptcy Outweigh The Social Cost 

So while there are social costs to filing a bankruptcy case, usually the costs are less than what the client anticipates prior to filing.And bankruptcy exists to reduce the social costs of the other alternatives to managing debt. If a person files a bankruptcy case, that person does so, at least in part, to preserve the integrity of her paycheck and her property. If a person files a bankruptcy, that person does so, at least in part, to avoid the necessity of working a job-and-a-half and/or reducing already reduced expenses further. The idea of bankruptcy is to prevent people who are struggling financially from further impoverishing themselves and allow them to live their lives with dignity. The idea of bankruptcy is to preserve family and marital relationships while still allowing individuals to realize the financial advantages of work. So while bankruptcy does have social costs, on balance, bankruptcy’s social costs are defined and limited, and the benefits of bankruptcy to those individuals who file cases include the elimination of the personal and social costs of the alternatives.

To Learn More About The Advantages and Disadvantages of Filing Bankruptcy in MN download my Free Debt Solutions E-Book. If you would like to contact me directly, please reach out to me at: