The Emotional Cost of Bankruptcy and Insolvency

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Personal bankruptcy is not a topic that is relevant to most of us – until it is. The number of people filing for bankruptcy over the last 20 years ranged from a low of 374,000 in 2022 to over 2,000,000 in 2005.

The top reasons that cause people to declare bankruptcy are job loss, medical bills, an unaffordable mortgage, overspending (including on credit cards) and helping other family members with financial assistance. Student debt accounts for only 0.1%, in large part because of federal restrictions on using bankruptcy to avoid repaying education loans.

While much information is available about the technical aspects of avoiding bankruptcy and steps to take when filing for it, there isn’t much written about the emotional costs. Bankruptcy can be emotionally as well as financially devastating. It can evoke very difficult emotions, not only for those going through bankruptcy but for their family, friends, employers, and coworkers. The ripple effect can affect everyone in the person’s sphere.