Bankruptcy Stigma Is Not What You Think
Do you have a preconceived notion of what declaring bankruptcy signifies? Do you think people who file bankruptcy are dishonest, lazy, con-artists, irresponsible, or immature?
If so, you are like most people. It is not uncommon that people place a stigma around “bankruptcy” – the stigma stems from fear. Or, it stems from being a moral person, with a feeling of responsibility that you should pay back your debts.
If you are holding back from filing bankruptcy out of fear, guilt, or shame, you are not alone. There is a reason bankruptcy carries a stigma, surrounded by perceived judgments or comparisons. But most of these stigmas only exist in the mind of the person considering bankruptcy.
It can be said that bankruptcy is one of the most valuable protections we are afforded as Americans. In fact, bankruptcy is outlined in the United States Constitution – therefore, it is a constitutional right. Without the protections of bankruptcy, businesses would not take as many risks, and families would not be able to re-surface after drowning in debt. Without bankruptcy, debt could haunt you and your family for the rest of your life and beyond.
But with bankruptcy, you are given another option. With bankruptcy, you are given an opportunity, unlike with whatever unique circumstance caused you to fall into financial distress.
Bankruptcy is not a dead end. Rather, it is a new beginning.
Busting Myths of Declaring Bankruptcy
There are many myths that come with declaring bankruptcy and that need to be broken, especially if you believe them. Here, we’ll bust several of the myths that come with declaring bankruptcy:
Your success is not measured by your financial status. Often, people feel they are less capable of success because of financial “failure.” You are, however, more capable of success when you are at least back to the ground level. There is no doubt that you are in a better position to climb to the top when your ladder is on the ground, rather than 100 feet deep.
Your success is also not measured by your wealth in relation to your neighbors. Often, this is the mentality (or at least part of the mentality) that leads to debt. However, being ashamed to take advantage of financial strategies like bankruptcy can drive your debt further.
Do you really want to spite yourself because of perceived social status? Besides, if there is one thing Americans can agree on, it is that our economy is rough for families and small businesses. Bankruptcy provides a financial fresh start – which actually evens the playing field.
Also, it is likely that your neighbors will not even know that you filed for bankruptcy. Although bankruptcy proceedings, like any court action, are public information, it is doubtful that anyone would go out of their way to independently discover this information. You may not control your financial situation but you can control to whom you disclose information. Your bankruptcy attorney, who owes you not only a fiduciary duty, but also a duty of confidentiality, will not disclose your information either. Besides, any neighbor that may actually treat you differently due to your financial situation is not someone who you will ever truly win the approval of, anyway.
It is during times of turmoil – like bankruptcy and the surrounding circumstances – when you discover who is truly there for you. Your character is not based upon your wealth, but rather how you treat people. And people will treat you as a reflection of how you treat them. Chances are, you will tighten ties within your network, rather than feel everyone in your safety net to unravel beneath you.
You are not untruthful for filing bankruptcy. Often, people fear that they will be perceived as untruthful, opportunistic, or taking advantage of their creditors. But this is not the case. While bankruptcy may hold this stigma, it is often the fact that people file bankruptcy due to reasons beyond their control – not because they are scheming the situation and totally in control of their creditors.
For example, you may get divorced (which is financially – as well as emotionally – devastating), or you or a family member may suffer from a significant health issue. In these cases, bankruptcy just makes financial sense – it is times like this when bankruptcy can help you to take an honest look at your financial situation and assess what you can repay to which creditors.
You are not irresponsible for declaring bankruptcy. Often, bankruptcy stems from financial responsibilities that are beyond our control. For example, you may become sick or injured, which results in medical debt. From there, you might become unable to work, which results in your inability to contribute towards your medical debt.
When you are unable to work, you might become unable to pay off your monthly mortgage. With so much debt already, you might become unable to take out a second mortgage or home equity line of credit to pay off the medical debt, first mortgage, or even pay for your groceries. These things happen – frequently. The truth is, this can happen to anyone – and it happens to doctors, lawyers, laborers, part-time workers, business owners, etc.
You are not a failure for declaring bankruptcy. Often, people equate their worth with their ability to pay their financial responsibilities. But you are not less worthy of a person because you might not be worth as much as you would like to be “on paper.”
Did you know that successful businesses file bankruptcy, quite often? That’s because the business leaders are aware of the benefits and protections that bankruptcy offers. It is often a strategic decision, to either reorganize or re-allocate finances. So, next time you feel like a failure – just think of yourself as the CEO of your life. Make a strategic decision to come out on top – rather than a decision to continue getting buried.
You are not alone if you file bankruptcy. Often, people are afraid of the burden that they perceive to be associated with bankruptcy. You may feel isolated if you are considering bankruptcy - but bankruptcy is not a burden you have to bear alone.
The average American family has around $15,000 in credit card debt. High interest fees and late fees cripple these families. So, you are not alone if you are considering bankruptcy. Did you know that millions of people have already opted to exercise their bankruptcy privileges, including hundreds of thousands of people each year?
Plus, bankruptcy lawyers are skilled in their craft, fighting to lower your debt; counselors are available to discuss options within your personal life; and even banks and lenders may be there to help you financially.
This last part might sound counterintuitive, or even too good to be true. But the truth is…
You do not destroy your credit forever if you file bankruptcy. In fact, it is possible to build back your credit within a year or two after filing bankruptcy. This is possible because lenders presume that you are more likely to pay off debt after filing bankruptcy – due to the fact that you must wait 8 years before you can file bankruptcy again.
Think about it – who would you rather loan money to? The person who has four maxed-out credit cards, that never filed bankruptcy, and who may not have the income to support minimum monthly payments? Or, the person who just filed bankruptcy, has no significant debt or is making payments on outstanding loans, and is prohibited from filing bankruptcy again for several years?
It makes fiscal sense for lenders to take less risk and gamble on you, if you file bankruptcy. You are more likely to have a better credit score after filing bankruptcy than if you let your debt linger, without confronting it head on.
Bankruptcy does not haunt you for the rest of your life. It is a protection placed in the American economic system – via the U.S. Constitution – in order to provide a safety net for our families and businesses.
The only thing that will certainly haunt you forever is unattended incurred debt, if you decide to forego bankruptcy in lieu of pride. If certain debts are not addressed during your lifetime, they may have the potential to attach onto your estate and survive your death.
This means that your family or heirs would have to repay certain loans. So, even though bankruptcy will not haunt you for the rest of your life, your unaddressed debt – steadily and exponentially increasing – just might.
Bankruptcy is not a badge of dishonor. Actually, it takes a pretty reasonable and responsible person to file for bankruptcy. If you feel shame towards not making payments on your debt, it is because you are doing the best you can to be responsible. So, if you are experiencing any feelings attached with the emotional, social or financial stigmas surrounding bankruptcy, chances are you feel that way because you are an honorable, hard-working person.
The Truth About Bankruptcy
The truth is that there are a lot of savvy financial and legal reasons to file bankruptcy. Did you know all of the benefits of filing bankruptcy, so that you can really make a decision after a cost-benefit analysis?
First, it is important to establish that there are two types of bankruptcies (for individuals) – Chapter 7 (liquidation) and Chapter 13 (restructuring).
Chapter 7 bankruptcy allows an individual to wipe out most of their “unsecured” debt – meaning, debt not backed by collateral. Unsecured debt includes debt incurred from credit cards, medical bills, court judgments, or utilities, whereas “secured debt” is backed by collateral, such as a car or real estate. It should be noted that even Chapter 7 bankruptcy does not liquidate student loans, taxes, or child support. Chapter 13 bankruptcy allows an individual with a steady income to repay certain restructured debts. These debts are typically mitigated (i.e. cents on the dollar) and allow people to make payments over several years.
Most people who file Chapter 13 bankruptcy make “too much money” to file Chapter 7, but that does not mean there are no benefits to filing Chapter 13 over Chapter 7. For example, a person with a second mortgage on their home may choose to file Chapter 13 bankruptcy, as a second mortgage is unsecured by collateral and will not survive bankruptcy. With both types of bankruptcies, you may be able to keep your property – such as furniture, vehicles, appliances, computers, retirement accounts, and bank accounts.
Also, let’s not forget that both Chapter 7 and Chapter 13 bankruptcy offers one of the biggest protections of all – the automatic stay. This triggers upon filing bankruptcy, and “stays” any creditors from taking legal action and pauses any current legal proceedings. For example, this can help protect your home from first, second, or condo lien foreclosures.
So, if you wait to file for bankruptcy until after your home is foreclosed upon, you are missing out on the protections that bankruptcy has to offer – and doing yourself a disservice.
If there’s anything that you take away from this article, it’s that bankruptcy should be a strategic decision, rather than a stigma. If these myth busters above resonated with you, perhaps you should seriously consider filing bankruptcy. The first step to overcome your financial grief is to accept it. This includes giving bankruptcy – and all of its costs and benefits – a serious hard look.
Talk to a bankruptcy lawyer in your state today in order to see whether bankruptcy makes sense for your situation. You will be taking definite action towards handling your debt, which is quite responsible rather than shameful. Filing for bankruptcy – and the reasons surrounding a person’s situation causing severe debt – is emotional enough. Do not let the stigmas of bankruptcy weigh on your already-heavy conscience.
Again, if you file bankruptcy, you are not a failure; you are not alone; dishonest; you are not permanently damaged; and you are not taking advantage of your creditors. The only thing you are taking advantage of is your constitutional right to a safety net. So, do not let the stigma prevent you from taking advantage of the full range of benefits that bankruptcy can provide you – including your peace of mind.
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