Bankruptcy can have effects on earnings, employment and mortality rates. These go far beyond regaining financial freedom according to a new study published by the National Bureau of Economic Research. The study looked at court and tax records of about 500,000 Americans who recently filed for Chapter 13 bankruptcy.

The study compared people at the “margin” who were able to file bankruptcy with those whose bankruptcies were dismissed. The study is based on the premise that people are assigned randomly to bankruptcy judges (the judges work with bankruptcy trustees and must approve the trustees’ recommendations on who should receive a discharge. Additionally, the study operated on the premise that judges have great leeway in interpreting the bankruptcy code when it comes to accepting a case or dismissing it. This premise allowed the researchers to find successful petitioners on whose cases involved judicial discretion. These people were at the “margin” for the study’s purposes. The study often compared the margin group to the people whose bankruptcies were dismissed (unsuccessfully filed, not discharged) as well as the general population.

In general, people’s incomes fall before they file bankruptcy. They may even be unemployed. When the researchers looked at the sample, they found that of all filers, those who got bankruptcy protection earned $1,500 to $2,000 more before they filed than those who filed, but had their petition dismissed. Interestingly, those who had their petitions dismissed faced steeper declines in income than those who did not have their petitions dismissed. Also, the people who were at the margin and filed successfully earned $5,528 on average more than people who filed but had their papers dismissed for the full year following the filing. The most direct and most notable figure from this part of the study is that those who successfully filed at the margin earned $5,012 more than those who did not in the five years following the filing.

Next the study looked at employment rates. Unlike with wages, employment rates are not significantly different before filing bankruptcy when comparing the marginal group and the dismissed group. However, after bankruptcy, for all successful Chapter 13 bankruptcy filers, average employment rose by an amazing 3.5% compared when compared with their past job records. Furthermore, it is likely, though proven with less certainty that there is a similar upwards trend in employment among those who filed bankruptcy six to ten years ago. It is also of note that self-employment rates grew among those who filed for bankruptcy.

Tying in income and employment rates, there were 12.2% fewer SSI recipients among those in the study who had filed for bankruptcies and also a decrease among SSDI recipients. Also, there was some increase in how much money filers put away in their 401(k) retirement plans after bankruptcy.

Why do all of these income and employment figure changes after bankruptcy? Bankruptcy is a useful tool and social protection when needed, but it is not a magic wand. Why did statistics show such positive results?

As it turns out, wage garnishment practices affect employment and earnings. If someone is watching their wages decrease as time goes on due to wage garnishments, then no matter how hard they work, that individual may not feel incentivized to work. Why work overtime to make extra money when a creditor will take that money away using a court order? Another factor to consider is something called “protection against episodes of economic instability.” Bankruptcy can discharge debts or create a reasonable payment plan for people with significant secured debt. Successful bankruptcy filers are one-fifth more likely than unsuccessful filers to work in the same industry. The same is true for migration—there is an increased likeliness that people will stay in the same county and state where they filed their bankruptcy than they will move. These are signs of stability and a prosperous economic future. However, when one’s finances are in peril, often before filing bankruptcy, these two signs of stability are not so. The study explains that the features of bankruptcy

“increase[s] economic stability by allowing debtors to avoid eviction or home foreclosure, reducing the incentive to strategically move across state lines or change jobs to avoid creditors, and preventing sharp drops in consumption that may have important long-term consequences, such as becoming sick through lack of medical care.”

If, before filing for bankruptcy, one feels threatened on various economic fronts, then working may be difficult and achieving a higher salary may also be difficult.

If you are considering filing bankruptcy, then you should speak with an experienced attorney. Jayson Lutzky is a lawyer with over 31 years of experience in New York State and has helped numerous highly satisfied clients through difficult financial situations. While there are now guarantees that filing a personal bankruptcy will find you a job and will help you earn more, it still gives you a fresh financial start. This new start can afford many opportunities and is often a relief. Mr. Lutzky offers free in person consultations. Call 718-514-6619 to set up a confidential, no-obligation appointment. Visit to learn more about the latest trends in bankruptcy.