The """"Why"""" is that we Americans are excessively optimistic about money. The reluctance to declare bankruptcy is ingrained in our culture. As a culture, Americans have been devoted to optimism for decades. We believe that """"Stock prices WILL rise!"""" will be true. """"Real estate prices are always a sure bet!"""" """"If the economy is in trouble, have no fear: things will improve shortly."""" Or so we believed.
In addition, Americans have an unrealistically moral view of money. Therefore, when we fall behind on our expenses, even if it's due to a layoff, we feel guilty, as if we are always to blame for the misfortunes that befall us.
A combination of optimism - sometimes to the point of what Alan Greenspan termed """"irrational exuberance"""" - and the desire to live up to the American ideal of the self-sufficient, rugged individual causes many to fail, according to my sixteen years of conversations with people in dire financial straits. Borrowers get deeper and deeper in debt, believe it can't get any worse, it does, then they believe it can't get any worse than THIS, it does, etc.
When the borrower reaches the point where things MUST improve, but circumstances are not cooperating, the borrower believes that a small emergency withdrawal from retirement funds will suffice. Frequently, this only exacerbates the problem in countless ways. It results in a harsh penalty, taxation on the withdrawal, and a precipitous slope.
It is this reluctance to accept assistance from an unconventional source (or from ANY source, for that matter) combined with a sometimes misguided compulsion to do the """"right"""" thing that, I believe, causes people to be hesitant to take ALL the bankruptcy assistance available to them. They choose Chapter 13 instead of Chapter 7 in order to avoid leaving all of their debts behind.
It appears as though the borrower does not feel """"entitled"""" to such drastic relief. I consider it in relatively dramatic terms. Debt is comparable to a malignancy. Given the option of life-saving surgery that will swiftly and safely remove the malignant tumor, the borrower who chooses Chapter 13 bankruptcy instead chooses a lengthy and painful course of radiation and chemotherapy with a two-out-of-three chance of FAILURE. Two-thirds of Chapter 13 cases conclude prematurely and incompletely, rendering them pointless to the debtor. Those who feel compelled to repay debt for moral or religious reasons are encouraged to do so if they are able. However, if the debt is discharged in a Chapter 7 bankruptcy, you can do so on your own terms, without having to worry about unpleasant letters and phone calls, lawsuits, and the like.
Consider first that the bankruptcy laws ALLOW the majority of debtors to retain their property when determining the """"right"""" action. And presumably the same people who wrote the bankruptcy code to make it more difficult to obtain relief also believed that every citizen should be able to support himself in retirement, as opposed to, for example, draining the federal coffers. Thus, bankruptcy filers can typically maintain very substantial retirement accounts while filing. Initially, it will feel like a failure, but only temporarily. This emotion is supplanted by relief and tranquility. There is hope for an improved life and light at the end of the tunnel.""
" - https://www.affordablecebu.com/