It's easy to think that two incomes create a buffer against financial hardship, but between their vehicles, homes, education, medical bills, and other major expenses, many Americans incur and carry significant consumer debt. Many people also have a natural desire to reward themselves for their hard work, leading to purchases that can be managed with current income levels but leaving less room for the unforeseen. Needless to say, when one income is removed typically to job loss, it can be difficult, if not impossible, to keep pace with monthly bills. As a result many of these households seek debt relief through chapter 13 bankruptcy.
Decline in Purchasing Power
It's not just potential job loss and consumer purchases that lead to difficulties in getting out from a burdensome debt. There are also macro-economic trends. For one thing, dual income is itself not the bulwark against financial hardships that it once was. In the book The Two Income Trap, authors Elizabeth Warren and Amelia Tyagi point out that these households are typically in worse shape than single-income households from the generation before. Despite bringing in 75 percent more income, fixed living costs have been rising at an even faster rate. Perhaps what's most interesting is that this book was published in 2003 when the cost of gas was approximately $1.75 per gallon.
It's not just potential job loss and consumer purchases that lead to difficulties in getting out from a burdensome debt. There are also macro-economic trends. For one thing, dual income is itself not the bulwark against financial hardships that it once was. In the book The Two Income Trap, authors Elizabeth Warren and Amelia Tyagi point out that these households are typically in worse shape than single-income households from the generation before. Despite bringing in 75 percent more income, fixed living costs have been rising at an even faster rate. Perhaps what's most interesting is that this book was published in 2003 when the cost of gas was approximately $1.75 per gallon.
Chapter 13 Debt Retirement Plans
A decline in purchasing power may have been the general point of this book, but it also has specific applications for chapter 13 bankruptcy. Unlike chapter 7, this chapter requires filers to submit a detailed debt repayment plan-typically with the assistance of a credit counseling agency. This plan includes the amount of anticipated disposal income that can be used to pay down consumer debt. With the need to account for rising living costs, there is less disposal income. This trend has a double negative impact. Not only does it make it more difficult to execute a chapter 13 repayment plan, but it may keep other filers from receiving chapter 13 approval from the outset.
A decline in purchasing power may have been the general point of this book, but it also has specific applications for chapter 13 bankruptcy. Unlike chapter 7, this chapter requires filers to submit a detailed debt repayment plan-typically with the assistance of a credit counseling agency. This plan includes the amount of anticipated disposal income that can be used to pay down consumer debt. With the need to account for rising living costs, there is less disposal income. This trend has a double negative impact. Not only does it make it more difficult to execute a chapter 13 repayment plan, but it may keep other filers from receiving chapter 13 approval from the outset.
Increase in Percentage of Chapter 13 Filings
Again, despite this added difficulty, the prevalence of formerly dual income households experiencing at least one job loss is leading to an increase in the relative percentage of chapter 13 filings. In other words, due to improving economic conditions, bankruptcy filings saw an 11 percent decline from 2010 to 2011. However, over the same time period, chapter 13 filings went from 28 percent of all non-business bankruptcy filings to 30 percent.
Again, despite this added difficulty, the prevalence of formerly dual income households experiencing at least one job loss is leading to an increase in the relative percentage of chapter 13 filings. In other words, due to improving economic conditions, bankruptcy filings saw an 11 percent decline from 2010 to 2011. However, over the same time period, chapter 13 filings went from 28 percent of all non-business bankruptcy filings to 30 percent.
Moreover, as the economy continues to recover, it will be interesting to see the number of new dual-income households and their spending habits. Will these spending habits return to pre-recession levels and will the next recession cause this cycle to repeat once again? Likewise, will the decline of purchasing power reverse itself in the foreseeable future, and what types of jobs will be available to these households. After all, many of the job losses experienced by dual income households are temporary. However, the next job may not offer the same level of income, throwing many debtors into the multi-year repayment plans offered in chapter 13.
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