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.
Updated July 22, 2020
Filing for bankruptcy is an important decision. Many people look to bankruptcy for relief when they find themselves unable to make ends meet. In addition to being overwhelmed by debt, many people feel anxious and embarrassed about admitting that they need help.
There is absolutely no reason to feel embarrassed about bankruptcy! Bankruptcy is an important safety net that exists for a reason. It is designed to provide a fresh start to those who need it most. It is a beginning, not an end.
Bankruptcy is a way of getting relief when you find yourself overwhelmed by debt.
Bankruptcy is something that can happen to anybody for reasons beyond their control. Financial shocks like job loss, medical bills, divorce, or small business failure can often lead to bankruptcy.
Even more, bankruptcy can be almost impossible to predict. Anything from a sudden repair to an emergency surgery can put a dent in your bank account and a burden on your paycheck.
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 are 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 or not you see it coming, the reality of having to divide property and pay attorneys can leave you in pretty bad shape financially.The price of starting a new chapter can often lead many to need a fresh start through bankruptcy.
It’s important to keep in mind that events like the ones above don’t discriminate. Anybody can experience a sudden financial shock. They often come unannounced, without warning. You can’t predict who will need to file for bankruptcy, but you can predict that, if you need it, it can help you get some relief.
If you are 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 is 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 may not know filed for bankruptcy, even though you almost certainly know who they are!
Abraham Lincoln Abraham Lincoln filed for bankruptcy due to small business failure. He later went on to become the sixteenth president of the United States!
Henry Ford Henry Ford 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 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.
Stan Lee Even Stan Lee, the creative genius behind some of the most beloved superheroes such as Spiderman or the Avengers, needed to be rescued from his debt. The Marvel comics creator filed for bankruptcy in 2003.
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 to go through it. Even though it can happen for a variety of different reasons, many people still feel embarrassed about it. Some people feel like they have failed and struggle with the emotional toll that takes.
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, 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 your about to take steps to getting back on track.
Bankruptcy isn’t an end, but a beginning.
Instead of Feeling Negative -- 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 a foundation for stronger future.
The idea of bankruptcy alone might stress you out because you have 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 not 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 three and six 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. 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 score. While it’s true that Chapter 7 bankruptcy will appear on your credit report for 8 years, it’s more likely that the process will ultimately help your credit score.
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. 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.
Removing the debt from your report will give your credit score the chance to rise. If you commit to taking on little debt and making on time payments for the debt you do have, you should see an improvement in your score relatively quickly through the use of secured credit cards and careful financial planning.
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 penalize 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 (ahem behave!), but bankruptcy can’t be the reason you get fired. 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 as soon as you file. This includes collecting debts by garnishing your wages. A bankruptcy discharge can actually improve your monthly income because you actually get to keep your entire paycheck.
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. Approximately 90% of bankruptcies in America are the result of sudden financial shocks like the ones above.
Bankruptcy exists for a reason and is worth considering if you find yourself in need of a fresh start. 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. However -- 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 might be more desirable than someone who needs to file, but hasn’t. This is because you were actually less likely to pay bills on time when you had more debt. As compared to now, when you have more financial freedom to pay your bills on time.
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 entirely 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 improve a vast array of issues your 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 we talked about earlier, debt collectors cannot contact you to collect the debts while your case is being processed. If they try to collect the debt, the court can penalize them.
Erases Most Debts
Chapter 7 bankruptcy erases, or “discharges,” most kinds of debts such as credit card debt, medical bills, personal loans, civil judgments (except for fraud), past-due rent, past-due utility bills, business debts, and some older tax debts.
A few debts can’t be erased, such as most student loan debt and certain debts that you owe to the government (like taxes!).
Most Filers Retain All Their Property
Most people who are eligible to file for Chapter 7 bankruptcy don’t have property that is susceptible to seizure. Most of their day-to-day property is protected under the Chapter 7 property 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
Parking tickets and lack of insurance are two of the most common ways to get your driver’s license suspended. Filing for Chapter 7 can help you recover your driver’s license. By recovering your license, you can operate a car, and if you can drive, you’ll be able to get to work and run other important errands more easily.