Should I be Embarrassed About Filing for Bankruptcy?
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Should I be embarrassed by a Chapter 7 bankruptcy filing? We'll let you know how you should think about your discharge of your debts.
Written by Kristin Turner, Harvard Law Grad. Legally reviewed by Attorney Andrea Wimmer
Updated November 30, 2020
Bankruptcy is a way of getting relief when you find yourself overwhelmed by debt. Unfortunately, in addition to being overwhelmed, many feel anxious and embarrassed about admitting that they need the type of debt relief bankruptcy provides.
There is no reason to feel embarrassed about filing bankruptcy!
Bankruptcy is an important safety net that exists for a reason. And it’s available for anyone who truly needs the relief. The bankruptcy system is designed to provide a fresh start to those who need it most. As the number of successful and well-respected figures in American history who filed bankruptcy themselves have shown, it’s a beginning, not an ending. More on that below.
Bankruptcy is something that can happen to anybody for reasons beyond their control. Anything from a sudden repair to an emergency surgery can put a dent in your bank account and a burden on your paycheck. Financial shocks like job loss, medical bills, divorce, or small business failure often lead to bankruptcy.
Job loss is one of the most common causes of bankruptcy. If you live on your own or are a head of a household, losing your job can throw a wrench in your ability to provide for yourself and your family. And, even if you weren’t already struggling to make ends meet, losing your income can stall your ability to pay your bills on time.
Unexpected medical bills leave many people worried about their physical and financial well-being. In addition to making sure that you or your loved one will get better, you’re often responsible for the high cost of the care. Having to pay those bills, especially without a lot of notice, can send your checking or savings account into a nosedive.
Divorce can have high emotional and financial costs. Whether you see it coming or not, the reality of having to divide property and - in many cases - pay attorney fees can leave you in pretty bad shape financially. Unfortunately, too many times the price of starting a new chapter in life requires the kind of fresh start only bankruptcy can provide.
It’s important to keep in mind that events like these don’t discriminate. Anybody can experience a sudden financial shock. Usually without warning. You can’t predict who will need to file for bankruptcy. What you can predict is that - if you need it - bankruptcy can provide you with a fresh start by wiping out your debts and giving you a clean slate.
In short, if you’re feeling embarrassed about bankruptcy, it’s important to understand just how common it is and that you’re not alone.
Famous People Who have Filed
It’s a little known fact that many famous people have gotten a fresh start after filing for bankruptcy. Not only have they gotten back on their feet, many went on to achieve great success because of their fresh starts! Below are a few people that you probably recognize but had no idea that they filed bankruptcy:
Abraham Lincoln. Honest Abe filed for bankruptcy due to small business failure. He later went on to become the sixteenth president of the United States!
Henry Ford.This American industrialist and business magnate filed for bankruptcy multiple times on his way to becoming an industry pioneer. The automobile giant actually had two fresh starts before Ford Motors succeeded.
Cyndi Lauper. This iconic singer, now known for her legendary career as a musician, Cyndi Lauper filed for bankruptcy two years before her big break.
Walt Disney. Before creating his iconic cartoons and stories, Walt Disney fell into significant debt as a young filmmaker. After getting his fresh start he went on to create one of the most recognizable characters of all time: Mickey Mouse.
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Managing Your Bankruptcy-Related Emotions
While it’s comforting to know that a lot of people go through bankruptcy, it doesn’t change how hard it can be emotionally. Many feel like filing bankruptcy is a personal failure and struggle, even though the root cause of their financial problems was completely out of their control.
The farther you get behind on bills, the more overwhelming it can be. Many people report feelings of worry, anxiety, helplessness and depression. These feelings can also cause physical distress: restlessness, weight loss, hair loss, increased smoking or drinking.
If you’ve been living with debt for a while, you’ve likely been through a lot! Don’t discount yourself and all you’ve been through. You’re dealing with a very stressful situation, but you're about to take steps to getting back on track. So, don’t let feelings of failure take over.
Instead -- Reframe Your Thinking
Many people feel embarrassed about bankruptcy because they don’t understand it. There are a lot of stereotypes about what it is, what it involves, and whether or not it’s a good idea. Many people view bankruptcy as a setback, when in fact it is an opportunity to get back on your feet.
Bankruptcy was specifically designed to help people bounce back from financial hardship. You shouldn’t be embarrassed about your bankruptcy because it means you’re taking action to get back on track. Without the weight of debt hanging over your head, you’ll be able to build the foundation for a stronger future.
The idea of bankruptcy alone might stress you out because you’ve heard incomplete or exaggerated accounts of what it involves. The sad truth is that horror stories that give bankruptcy a bad name often lead a lot of people not to seek the help they deserve. This keeps them trapped in a cycle of poverty with no end in sight.
The following section is meant to help dispel some of the rumors so that you get to the bottom of what bankruptcy might mean for you.
Myth: Bankruptcy is a long process.
Chapter 7 bankruptcy usually takes between 4 - 6 months to complete. However, even though the process can take a few months, filing for bankruptcy provides immediate relief from your creditors.
As soon as you file, creditors are prohibited from contacting you by the automatic stay. Like many others in this situation, this is probably the first opportunity to press pause, catch your breath and start organizing your affairs. Filing for bankruptcy brings immediate relief -- and that is nothing to be embarrassed about.
Myth: Bankruptcy is bad for your credit.
This is a common one. Many people are hesitant to file for Chapter 7 bankruptcy because they think it will damage their credit. While it’s true that a Chapter 7 bankruptcy will appear on your credit report for 10 years, your credit score will rebound much quicker.
If you’re one of the many people who are seriously considering bankruptcy, defaulting on your current debt has likely resulted in a low credit score already. Keep in mind credit scores can be impacted by missing payments, making late payments or having debts go into collection. Most people considering bankruptcy experience one or all of these things in the months and years leading up to filing.
Eliminating your debt will give your credit score the chance to rise. If you commit to taking on little debt and making on-time payments to build a strong repayment history, you should see an improvement in your score pretty quickly.
Myth: Bankruptcy can negatively affect my job.
If you’re considering bankruptcy, maintaining a source of income is especially important. Many people worry that their employers can punish them for filing for bankruptcy or, even worse, put them at risk of being fired. Others are embarrassed about having to file and don’t want something so personal becoming public.
The truth is that, if you’re currently working, employers can’t fire you or change your employment status because you file for bankruptcy. Now, that’s not to say you can’t get fired for other things, but it can’t be due to your bankruptcy. In fact, unless your checks are being garnished and your employer has to play a role in that, it’s entirely possible that your employer won’t even find out that you filed!
Now, keep in mind, this doesn’t apply to potential jobs or employers. So, if you’re in the process of applying for work, your future employer will likely see your bankruptcy on your credit report if you agree to a background check. In these cases, it’s often best to be straight forward. Instead of being embarrassed, use this as an example of how you take charge and know when to ask for help!
Myth: Bankruptcy will hurt my earnings.
As mentioned above, bankruptcy prevents creditors from collecting money from you as soon as you file. This includes collecting debts by garnishing your wages. As soon as your bankruptcy petition is filed, a wage garnishment has to stop. A bankruptcy filing can actually improve your monthly income because you’ll get your entire paycheck again.
Myth: Bankruptcy means I’ve failed.
It’s a common misconception that bankruptcy is the fault of the individual who is in need of relief. As mentioned above, there is no way to predict if you’ll need to file bankruptcy and there is no one reason why people need to. More often than not, a person files bankruptcy because of circumstances out of their control. Bankruptcy doesn’t mean that you’ve failed, it means that you’re ready to start succeeding.
Myth: Nobody will want to rent or lend to me after bankruptcy.
Yes, prospective landlords and lenders will be able to see bankruptcy on your credit report. But -- before you go running for the hills -- think about how you stack up now, without debt, compared to before when you were in significant debt.
For a landlord or lender, a person who has a bankruptcy on their record but no current debt is often more desirable than someone who needs to file, but hasn’t. This is because you’re actually less likely to pay bills on time when you’re struggling with too much debt. After bankruptcy, that is no longer a concern.
Beyond Debt: Ways Bankruptcy Can Help Improve Your Situation
Now that you’ve heard about some of the bad information floating out there about bankruptcy. Maybe it’s time to focus on some good information about bankruptcy that folks don’t often hear about.
Bankruptcy affects your entire life. Struggling to pay your bills can put everything from your utilities to your car or even your paycheck at risk. Some people are embarrassed about their situations. However, they’re also relieved to see the ways that Chapter 7 bankruptcy can help improve many issues you're facing because of your debt.
Stops Debt Collector Calls
The first thing you’ll notice about bankruptcy is that as soon as you file, the debt collection calls stop. As mentioned, debt collectors can’t contact you to ask for payment while your case is being processed, even before the bankruptcy discharge is granted. If they try to collect the debt, the court can penalize them.
Erases Most Debts
Chapter 7 bankruptcy erases most kinds of debtssuch as credit card debt, medical bills, personal loans, civil judgments (except for judgments based on fraud), past-due rent, past-due utility bills, business debts, and some older tax debts. Some debts, like past due child support or recent tax debts, can’t be eliminated in bankruptcy,
Most Filers Retain All Their Property
Most people who are eligible to file for Chapter 7 bankruptcy don’t have the type of property that could be taken to pay their creditors. Most of their day-to-day property is protected by bankruptcy exemptions.
Stops Utility Shut Off
Water, heat, and electricity are basic necessities. Bankruptcy stalls attempts to cut off your utilities. This can be especially important in certain months where lack of heat or other utilities can be life threatening. If you receive a discharge, bankruptcy can erase utility debts entirely.
Recover Your Driver’s License
Depending on the reason you lost your license, filing bankruptcy may be able to help you recover it.
Filing for bankruptcy does not mean you’ve failed. The best of us sometimes find themselves in financial holes that are simply impossible to get out of without help. The bankruptcy system is designed to give the honest but unfortunate debtor a fresh start. Especially if others are relying on your support, filing bankruptcy may be the most responsible thing you can do.
Bankruptcy is not right for everyone, but if the only reason you’re hesitating to file is that you can’t afford to pay the attorney fees to hire a bankruptcy lawyer, you’ve come to the right place. If you’re eligible, you can use Upsolve’s free tool to prepare and file your case on your own.