Personal insolvency

Personal bankruptcy

Nature

Personal insolvency is a financial condition in which an individual is unable to meet their debt obligations as they become due. This problem arises when personal liabilities exceed available assets and income, making it impossible to repay creditors in full. Causes include job loss, excessive borrowing, medical expenses, or poor financial management. Personal insolvency can lead to legal proceedings, such as bankruptcy or debt restructuring, and often results in long-term negative impacts on creditworthiness, access to financial services, and overall well-being. Addressing personal insolvency typically requires legal intervention, financial counseling, and lifestyle adjustments.

Background

Personal insolvency emerged as a significant global concern during the late 20th century, as consumer credit expanded and economic downturns exposed vulnerabilities in household finances. The 2008 financial crisis notably heightened awareness of widespread personal debt crises, prompting international studies and policy responses. Increasing cross-border mobility and digital lending have since complicated the issue, leading to greater recognition of personal insolvency as a persistent and complex challenge affecting diverse populations worldwide.

Incidence

In the former Federal Republic of Germany, there were 18,000 cases of insolvency in 1985 compared to 4,222 in 1970. Bankruptcy filings by individuals in the USA increased rapidly at the start of the 1980's, reaching by 1992 an estimated 900,000 filings per year (triple the number in 1984). A 1993 report, however, suggested a marked decline in US filings, as bankruptcies were down in January 1993 by 20% (February 1993 by 11%, and March 1993 by 7%) compared to the previous year.

Claim

Personal insolvency is a critical and growing crisis that threatens the financial stability and mental well-being of millions. Ignoring this issue perpetuates cycles of debt, poverty, and social inequality. The devastating impact on families and communities cannot be overstated. Urgent action is needed from policymakers, financial institutions, and society as a whole to address the root causes and provide effective support, or we risk deepening the economic and social divide beyond repair.

Counter-claim

Insolvencies are part of the daily lot of any open market-economy system, where enterprises automatically take economic and financial risks which do not always pay off.