Dealing with the Stigma of Bankruptcy
Most businesses and individuals donít go into bankruptcy unless they have absolutely no other choice. Bankruptcy, after all, is a last resort. But itís also not all negative. Bankruptcy, even with its drawbacks, is a chance for a new start. Itís a way to restructure, learn from mistakes and return with more experience.
But when itís happening, thatís little consolation for individuals dealing with the social stigma that exists, the perception that an individual or company is negligent, irresponsible or simply not intelligent enough to handle their money.
The website The Balance, a financial information site, suggests there are two main stigmas surrounding bankruptcy that often keep people from filing when they objectively should. The first is the emotional and social stigma.
The site points out that, while potentially painful, this has no effect on actual finances, but instead is a matter simply of self-perception. However, they are quick to point out that, so far as reputation and social stigma are concerned, in a personal bankruptcy usually the only people that know about it are those directly involved -- your attorney, your creditors, and those you tell. And, even if individuals do find out, itís important to remember that bankruptcy isnít as rare as it once was, especially after the 2008 recession and the seemingly limitless number of home foreclosures that wracked the country. Itís estimated that one of 10 individuals file for bankruptcy in the United States; with a practice this common, the only stigma that truly exists is the one a person puts on himself.
The second reason for avoiding bankruptcy is a bit more tangible. Worries about the potential 10 years a bankruptcy may remain on a credit report, the difficulty in getting loans or credit and other financial concerns often outweigh the practicality of starting over. And it is true that there are significant difficulties. However, if a situation becomes dire enough financially, sometimes bankruptcy may be the only option: starting over and rebuilding credit is often a cleaner solution to financial issues than repossession and the constant stress of being financially overextended.
While stigma and financial difficulties are very real reasons to avoid bankruptcy, the reasons that lead individuals into making the difficult choice to file are often beyond their control.
According to an article by Forbes Magazine, the No. 1 reason for bankruptcy in the United States is medical expenses. Healthcare is unavoidable: if the choice is between debt or death, most people will choose debt. As a result, a Harvard study shows that 62 percent of bankruptcies are related to medical expenses; surprisingly, of those, 78 percent had health insurance coverage.
Another common reason for insurmountable debt is job loss. When the economy goes on a downward trend, as it did in 2008, layoffs and job loss often follow, as companies donít have the demand for their supplies or services or the profit to keep employees. If this happens across the economy, as in the recession, there may be no other jobs available, and without sufficient savings, and as debt and bills pile up, thereís often no other choice.
Other common causes of bankruptcy include poor or excess use of credit, divorce or separation, and unexpected expenses, often related to natural disasters or other unforeseen circumstances.
It is true that bankruptcy is not anyoneís first choice. However, sometimes bankruptcy is the best option for a fresh start and better future. While the stigma and financial concerns are most certainly real, so is the future peace of mind by making sound financial decisions.
ABOUT THE AUTHOR: Thomas M. Fesenmyer
Thomas M. Fesenmyer is an Ohio bankruptcy and debt settlement attorney at Fesenmyer Cousino Weinzimmer, where his goal for all clients is asset protection and debt elimination.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.