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What if I'm afraid to file for bankruptcy?

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In a Nutshell

Many people in the United States are afraid to file for bankruptcy because they do not understand that most people who file are financially better off in the long run. After filing, most people see their debt erased and their credit scores improved. If their wages are garnished due to judgments, bankruptcy stops wage garnishment. Bankruptcy also improves employment outcomes.

Written by Attorney Jonathan Petts.  
Updated July 22, 2020


Many people in the United States are afraid to file for bankruptcy because they do not understand that most people who file are financially better off in the long run. After filing, most people see their debt erased and their credit scores improved. If their wages are garnished due to judgments, bankruptcy stops wage garnishment. Bankruptcy also improves employment outcomes.

Even despite all these facts, people are still afraid to file because they think that it means they’re admitting they failed in some way. Nothing could be further from the truth. The biggest reason people file for bankruptcy is that they experience some sudden financial shock. These include job loss, medical illness, divorce, small business failure, and family emergency. Most people file for bankruptcy because they experience an event that occurs at no fault of their own.

About 500,000 people file for Chapter 7 bankruptcy each year. More people file for individual bankruptcy than live in the entire state of Vermont. That’s a lot of people. Indeed, bankruptcy is a core feature of American history. Our Founding Fathers believed in allowing everybody to get a fresh start because they saw that people in England were sometimes thrown in prison for their debts. They wanted to create a better option, in line with what it means to be American.

The United States is also full of success stories of people who filed for bankruptcy and then were able to turn around their lives. Here are a few stories of famous people who filed for bankruptcy.

Abraham Lincoln

Abraham Lincoln declared bankruptcy after a business he started didn’t work out. In his early twenties, Lincoln opened his own store. Lincoln bought goods on credit, hoping to make a profit through sales. Sadly, Lincoln's sales were not good and he was not able to pay back his debts. Even the most famous people in history faced hard times and overcame difficulty.

Walt Disney

Walt Disney filed for bankruptcy after his first animation company, Laugh-O-Gram Studio, went out of business. After an unexpected event, Walt Disney could no longer pay his employees or his debts, so he filed for bankruptcy. Soon after, Walt Disney created the Walt Disney Company that we all know today. A few years later, Disney created Mickey Mouse, and his career entered new heights. Without bankruptcy, Disney movies would never have existed.

Henry Ford

Before he started the world-famous Ford Motor Company, Henry Ford started the Detroit Automobile Company. In his first two years, Ford only produced 20 cars. He was too focused on getting the design perfect. Having made so few cars, the Detroit Automobile Company went out of business and Ford filed for bankruptcy. After the bankruptcy, Ford went on to start the Ford Motor Company. He used the knowledge he had gained from his previous failure and went on to build one of the most successful car companies on the planet. Ford’s fresh start after bankruptcy made his second act possible.

Milton Hershey

Milton Hershey is famous for creating the chocolate company known around the world. But before he started Hershey's, he filed for bankruptcy twice when two different candy stores he opened shut down. Finally, with a fresh start, Hershey launched the brand we all know today, starting with caramel candies. Bankruptcy helped create the famous candy bars we all know today.



Written By:

Attorney Jonathan Petts

LinkedIn

Jonathan Petts has over 10 years of experience in bankruptcy and is co-founder and Board Chair of Upsolve. Attorney Petts has an LLM in Bankruptcy from St. John's University, clerked for two federal bankruptcy judges, and worked at two top New York City law firms specializing in... read more about Attorney Jonathan Petts

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