Bankruptcy has a bad reputation. Chances are great that if you questioned 20 random people on the street and asked them what they thought about bankruptcy, you would get a variety of negative responses. Sadly, most of the comments would be wrong. This is because the average person’s knowledge of bankruptcy is based on flawed information.
The bankruptcy process is confusing to those who have never dealt with the various issues and outcomes of bankruptcy cases. This has led to a lot of misinformation in the public realm concerning bankruptcy. The three bankruptcy myths discussed below are only a few of the misconceptions that plague the average person’s understanding of bankruptcy.
Filing Bankruptcy is Unethical
Those who believe filing bankruptcy is unethical may believe so because they have heard about people who have taken advantage of the bankruptcy process to knowingly and willfully mismanage their finances and then obtain debt relief. In such cases, filing bankruptcy is wrong and considered fraudulent under the law.
However, such instances are abnormal. Facts overwhelmingly show that most bankruptcies filed are done so by those who have fallen upon hard times, such as a job loss or unexpected health issues. It is these types of circumstances that lead individuals and families into a situation of overwhelming debt.
The Founding Fathers provided bankruptcy protection for these types of debtors in the Constitution. Article I, Section 8 of the Constitution gave Congress the power to enact bankruptcy laws to protect consumers from burdensome debt. Many of the protections and regulations that Congresses have enacted over the years have been based upon the Biblical concept of “forgiveness of debts” found in such passages as Deuteronomy 15:1–2.
Everyone Will Know You Filed Bankruptcy
Yes, bankruptcy is a part of the public record. However, the number of people filing for bankruptcy is so large that it is unlikely that anyone will randomly search your name in the public records. A small number of local newspapers publish such recent public records, often as filler, but the practice is largely going out of style. Of course, your creditors will receive notification, but they already know of your financial difficulties. So, unless you tell someone that you have filed for bankruptcy, chances are great that they will never know.
Filing Bankruptcy Will Ruin Your Credit
This is perhaps the greatest misconception about bankruptcy. This myth is most likely based upon the fact that bankruptcy does normally stay on a filer’s credit report for 7–10 years. However, just because the bankruptcy remains on your credit report for that long does not mean your credit will be “ruined” for that amount of time.
Recent studies have shown that credit scores of bankruptcy filers often improve after filing for bankruptcy relief. This is because their debts were successfully discharged upon their bankruptcy completion. Just because the bankruptcy appears on the credit report does not mean it will affect the filer’s capability of purchasing something on credit. It is ultimately the creditor’s choice whether to extend credit to them, and studies show that many creditors choose to do so.
Get Help Understanding Bankruptcy
If you are dealing with extensive debt, do not let misinformation about bankruptcy stop you from seeking the help you need. Contact us today for a free evaluation of your financial situation to see if bankruptcy may be an option for you. Brock and Stout’s bankruptcy attorneys have over 27 years of experience helping clients understand the truths about bankruptcy and how it can help them get a financial fresh start. Let our family help your family.