The Consumer Finance Stress Test: Factors that the Experts Believe Add to Your Financial Vulnerability

Other blogs on this site have addressed some of the “warning signs” that a consumer or small business bankruptcy may be on the horizon.  But various studies have been commissioned to look beyond those warning signs, and see if there are any personal or community characteristics which may influence individuals long before the warning signs actually occur.  This article will attempt to streamline some of those findings, with additions based upon our personal experience in representing consumers in the CSRA for over 40 years.[i]


1)      Family size and marital status are more likely to increase financial vulnerability, and the risk of bankruptcy.  Married and divorced individuals are more likely to file than individuals who have never been married, and do not have any children.  This makes sense, as a larger family is more expensive to support, and thereby puts a greater strain on finances.  As has been mentioned in other articles, single mothers appear to be disproportionately represented in bankruptcy in the CSRA.

2)      Households with higher than average debt-to-income ratios are more likely to file for bankruptcy.  In this situation, the household is so leveraged that any “hiccup” in income can result in default.

3)      The more credit cards that you have, the greater the risk of having to file for bankruptcy.  This is related to the previous finding.  More credit cards mean more accounts with different due dates, which can make the maintenance of timely payments difficult if there is an unexpected income change, or change in the contract interest rate (i.e. expiration of the introductory rate).

4)      Lack of health insurance and lack of access to health care.  Without health insurance, regular medical care such as check-ups may be unaffordable.  As a result, health issues may go untreated, and by the time that they manifest themselves, expensive treatment may be the only option.

5)      Community home ownership actually leads to a greater number of bankruptcy filings.  While home ownership may be indicative of sound credit, many individuals are driven to bankruptcy in order to prevent foreclosure and save their homes.  In addition, home ownership can put a greater strain on finances than renting, as the homeowner bears the cost of maintenance and repairs.


1)      Self-employed individuals are more likely to be financially stable than wage earners. Part of the explanation is that self-employed individuals have more flexibility, in that they can work more when they need more income.  They also have the ability to reduce or minimize business expenses to overcome a short-term reduction in income.

2)      Communities with a low amount of unemployment produce greater financial stability.  This is fairly self-evident, as a high rate of unemployment will lead to a greater number of bankruptcy filings as consumers have inadequate income to address their debts.  But it also accounts for the spillover effect, as the unemployment of a large amount of individuals will result in a loss of spending, thereby affecting other business which rely on that spending (i.e. a daycare that services the shift workers at a factory that is closed down).

3)      Communities experiencing new business growth will see fewer bankruptcy filings.  Closely related to unemployment as a community factor, as business growth means more jobs, especially for those who have been unemployed previously.


                While most of the community factors may be beyond your control if you have put down roots in a certain area, they are definitely something to be considered for someone who may be relocating to a different geographical area.  And while you may not be able to adjust certain factors such as family size, at least the realization that you may have increased financial vulnerability as a result may motivate you to create safeguards – such as disability insurance or emergency savings – which would enable you to navigate through a period of reduced income.


[i] Acknowledgement given to the American Bankruptcy Institute, for the information provided in its article “Consumer Corner:  Ecological Factors Related to Consumer Bankruptcy”, Vol. XXXII, No. 10 (November, 2013).