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Growing income disparity can lead to a need for bankruptcy relief

A study from the Social Science Research Network found a connection between the growing income disparity of the upper and middle class and the rate of bankruptcy filings in the U.S.
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    January 28, 2014 /24-7PressRelease/ -- Growing income disparity can lead to a need for bankruptcy relief

Article provided by Law Offices of Ellery E. Plotkin, LLC
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Families across the United States are struggling to make ends meet, arguably more now than ever before. A recent article in Bloomberg addressed this issue, noting changes in the nation's financial marketplace play a key role in the widening gap between the rich and the poor. When this gap increases, the rate of petitions for bankruptcy relief also increases.

This finding was supported by a study published in the Social Science Research Network titled Expenditure Cascades. In the piece, researchers found a marked connection between an increase in the wealth gap and an increase in bankruptcy filings. More specifically, for every one percent increase in the wealth gap the study found an eight percent increase in bankruptcy filings.

Researchers projected that those who were struggling to make ends meet often had to purchase homes in neighborhoods that were less costly. These neighborhoods were often further from work, increasing the owner's commute time and provided fewer services to help these families move forward in life, like good schools.

Key culprits

One of the key culprits for the wealth gap, according to the report, is the diminished housing market. Many Americans relied on the equity their homes could offer to help provide financial support to their families. Owning a home was viewed as a form of financial security. Those who needed extra income to cover children's college expenses or other costs could consider a second mortgage on their home. Unfortunately, many homeowners now find themselves upside down on their mortgages, owing more than the home is worth. As a result, homeowners often find themselves without equity in their homes. This has taken away a level of financial security.

Not only are families having difficulties sorting out finances regarding their homes, but it is also very difficult to move up in the job market. Industries like manufacturing have moved many of the high paying positions abroad, reducing the likelihood of promotions within this field.

Options for those who struggle financially

Unfortunately, some families find themselves unable to get out from under unmanageable debt. There is still hope for these families. In some instances, bankruptcy can offer the relief they need to get a fresh financial start.

Bankruptcy is provided for in the nation's constitution and is intended to offer the "honest but unfortunate debtor" an opportunity for future success without the burden of unmanageable debt. Determining if the risks associated with filing for bankruptcy are worth the benefits is a calculation that varies for every situation. As a result, those considering bankruptcy should contact an experienced bankruptcy attorney to discuss their unique situation and determine the path that is best for them.

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