I believe the most difficult part of making the decision to file for bankruptcy is overcoming the fear associated with this decision. In our culture, bankruptcy can have a stigma associated with it, and, as with many other stigmas, its close friends shame and guilt are not far behind.
This fear can show up in many ways, such as:
“I’ll deal with this later”;
“Things aren’t that bad right now”;
”There haven’t been any real consequences other than the occasional call from a creditor that I ignore”;
“I don’t want my friends and family finding out”;
“I’m not the kind of person that just gives up”;
“Filing bankruptcy is a way of avoiding what I owe, and I’m not that kind of person – I pay my debts”;
“Thing will turn around, I just have to give it time”;
“I can’t afford a lawyer even if I wanted to file bankruptcy”;
“I don’t want to mess up my credit”;
“I’ll just negotiate a payment plan…eventually.”
If you have had any of these thoughts, rest assured you are not alone. Many of my clients have had this reaction, and it comes out in many different forms. The first step is realizing that, most of the time, this line of thinking is based out of fear of looking the problem in the eye. Many times failure to address this fear through procrastination can eventually lead to significant consequences, including foreclosure, wage garnishments, bank account garnishments, judgments, not to mention the day-to-day stress that is a constant burden and can have many negative effects such as sleeplessness and depression.
The reality is that the bankruptcy system is set up to allow people to get relief from debt. It is as part of our society as any other law such as laws against discrimination, or laws against harming someone. Congress recognized that there was a need to provide relief for people, families and businesses being crushed by debt, and therefore enacted bankruptcy laws.
Realistic acceptance about your financial situation is the first step. Realizing that things do not have to get worse and making a decision to face your fear can be immensely helpful. This step is not easy by any means – but simply coming to the realization that there is a way out can bring significant relief.
Bankruptcy is similar to lifesaving surgery. The surgery may be expensive; it may have many side effects and be uncomfortable; and it may take several months or years to fully recover from the surgery – but the benefits of the surgery outweigh the consequences.
In many circumstances, the benefits to filing bankruptcy outweigh the consequences. Some of the consequences include: 1) a bankruptcy can show up on a credit report for up to 7-10 years; 2) it may be more difficult to get a loan or the interest rate may be higher; and 3) a bankruptcy can be more expensive than you may have thought. However, many times the benefits of the bankruptcy outweigh these consequences. For example, if someone has $10,000 in debt, it may be worthwhile to spend $1,000-2000 on a bankruptcy to eliminate that debt. If someone is behind in mortgage payments and cannot figure out how to bring those current, a Chapter 11 or 13 bankruptcy can force the mortgage holder to accept those payments over the span of 3-5 years, and therefore prevent a foreclosure and allow you to keep your home.
The best time to deal with debt is before it becomes a major problem. It is best not to wait the day before a foreclosure sale or wait until wage garnishments have begun, to file a bankruptcy. Having some time before filing can be a major asset in a bankruptcy case. For example, under 11 U.S. Code § 547, if a creditor collects on a debt within 90 days of the date of filing, that can be considered a preference that be avoided, and you may be able to get that payment or repossessed car back. Another example of the advantage of not waiting until the last minute is that the definition of income under the Bankruptcy Code is very specific and the decision about when to file can affect income for the purposes of bankruptcy.
If you have made the decision to face your fears and utilize the important bankruptcy laws to help you get a fresh start, you have made a decision that although difficult, can provide relief and allow you to reorganize and gain control over your financial life.
January 18, 2017