Academic journal article International Advances in Economic Research

Personal Bankruptcy and Its Social Implications

Academic journal article International Advances in Economic Research

Personal Bankruptcy and Its Social Implications

Article excerpt

The paper discusses the insolvency of households and the methods of solving it through debt relief. Personal bankruptcy in the Czech population increases by 30 % annually, and personal bankruptcy is a new approach to debt relief. The greatest risk of indebtedness occurs in low-income groups that use systems of loans to improve their financial situation. Within this debtor group, some kind of overestimation of their own income potential often occurs, which causes a situation where permanent insolvency is solved through other loans.

The reason for the constantly increasing number of filed insolvency proposals in the last few years can largely be attributed to the present economic situation. The reasons for the emergence of personal bankruptcies can also be found in psychological or socio-economic aspects. According to Stumm et al. (2012), who researched this problem in Great Britain, the psychological aspects of viewing one's financial situation and the general manner of handling money that could lead to personal bankruptcy can be divided into three basic groups. First, they mention financial ability, with which we can conceive the general knowledge by consumers relating to financial matters and their abilities to direct and control finances. The second group is represented by an attitude about money that expresses consumer feelings and opinions. This can be primarily influenced by the present situation or by incidental events.

Money can also be understood to be a symbol of power and control. People distinguish themselves and make manifest their standing through money. Money is also associated with expressions of love and generosity. The last category is the feeling of freedom and independence that money gives to people, representing the possibility of escaping from everyday reality. Socio-economic factors form the last group of psychological aspects that influence the financial situation of families and individuals. In this group, we classify the level of income and education attained. According to research in Great Britain and the U.S.A., people from poorer social classes have a greater tendency towards bankruptcy because they have far fewer financial reserves at their disposal than individuals from the other social strata.

Research studying a sample of persons in bankruptcy was conducted in the Czech Republic. A total of 109 persons in personal bankruptcy were observed. Information about debtors (age, sex, social standing measured by income, average amount of income, entire amount owed) was obtained from the Insolvency Register. …

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