I came across an article that I wanted to share in the New York Times. They are reporting on a new study by the Federal Reserve Bank of New York that shows that individuals are significantly underreporting how much debt they have. According to the study, households underreport their debt by an average of one third. Note that the study is addressing household income, not individual income.
Why I wanted to share this article is for two reasons. First, it lines up with my experience in working with couples with financial problems. And second, it highlights the importance of communication between spouses about debt. The article cites a couple of explanations for this underreporting: embarrassment and ignorance. I see both issues popping up in my work. As I help couples prepare for filing bankruptcy, we have to determine how much debt they owe and to whom. More than once I’ve seen a spouse bring up a debt that the other didn’t know about. You can imagine how keeping each other in the dark about credit card bills – or any kind of debt – can create problems for couples, both financially and emotionally. It’s impossible to make ends meet if you don’t know where the ends are.
Bankruptcy is about getting a new financial start. I tell my clients that I only want to have to help them once, and that I hope to never see them again. One of the ways they can make that happen is by making sure they are being open and honest with their spouse about household finances, including the debts they take on.
You can read the rest of the article here.
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