Bankruptcy: the result of failed financial relationships

This chapter examines research in the context of the relationships that are established with the consumer, creditor, and courts in personal bankruptcy. A conceptual framework is used to discuss the consumer’s relationship with the creditor and how each of these players’ use of the court system can affect debtor behavior and bankruptcy rates. Data from the Survey of Consumer Finances, administered by the Federal Reserve Bank also provide insights about credit use, delinquency, and bankruptcy of households. A key finding of this review reveals that bankruptcy rates have actually decreased in the past five years and potential fallout from the pandemic is still being anticipated as it relates to bankruptcy filings. Future research should be conducted to determine if the bankruptcy rates rise post-pandemic and if any rate increases are related to the pandemic or other causes. Information from the American Voices Project represents a new source of data that should be mined thoroughly for any insights it can provide about bankruptcy since it represents the country’s first platform for conducting qualitative interviews with a nationally representative sample of hundreds of communities in the United States. The review ends with a discussion of the imbalance of the financial relationship between consumers and creditors as well as recommendations for future research.