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Bankruptcy Should Be the Last Resort Many Say. But That’s Just Not True.

There they go again, “bankruptcy should only be considered as a last resort.” We’ve all heard that rumor or authoritative statement, many times. You even read it again and again in mainstream media. But here is the problem with that statement, it’s just not true. There are plenty of times when bankruptcy should be considered the first resort, not the last. When debt relief companies and others continue to push this myth, they do much more harm than good. And certainly one thing is clear, the statement is an emotional statement and not one based in fact.

For all those that think bankruptcy is a last resort, I’d love to show you the damage you’ve done in espousing that fairy tale. I’ve watched countless numbers of people lose everything just to live up to your imaginary and fictitious belief that bankruptcy should be a last resort.

In order to avoid bankruptcy, people will sell all their assets and limp along till they hit the wall, broke and without options. They will drain their protected retirement accounts, just to avoid bankruptcy. They will believe the sales pitch of debt relief companies and credit counselors that the widget those companies are selling is better, because bankruptcy should only be the last resort.

I’ve written about the “last resort” marketing message many times. And each time it was used as a way to scare or persuade the consumer to stay away from bankruptcy and buy the peddled debt relief product instead. But the reality is that in the face of no other reasonable, logical, or good options, bankruptcy should often times be the first option to investigate on the list.

Bankruptcy is also often the least expensive way to deal with debt in the shortest period of time. And for most people that file bankruptcy, their debt will be eliminated in a few months, and their retirement funds will be protected from creditors. Those funds will be protected for when they need them most, when they can’t work and need to be able to feed themselves.

Here is a better statement of fact about bankruptcy, it’s not the first or last resort, but one of the options consumers have to deal with their debt. There is no way to know if bankruptcy is the most appropriate solution in a particular situation unless the consumer talks to a local bankruptcy attorney. (You can click here to find a local bankruptcy attorney in your area.)

And if you press people on why they say bankruptcy should be the last resort, ask them this, “why?” I bet they come back with more myths like it will wreck your credit for ten years or it will prevent you from getting a job. Both of those myths are substantially unsupported. The reality is that it’s silly easy to rebuild your credit after bankruptcy and the facts don’t support widespread employment discrimination after bankruptcy.

Another common excuse I hear is that bankruptcy is immoral. That’s another argument based in perception rather than reality. There is no reason why someone can’t file bankruptcy to get legal from unreasonable creditors and then begin to rebuild their life and elect to repay creditors. There is also the issue of if it is more moral to leave yourself and family stranded in an unsafe life or financial position while you limp along for years trying to repair the past.

If bankruptcy is the right solution for churches, airlines, and cities, then why can’t it be the right solution for you?

Bankruptcy is just a tool, not a magic wand. If you’d like to evaluate where bankruptcy falls in the list of possible options, you can use the free How to Get Out of Debt Calculator and see where bankruptcy falls with other possible options.

Please, just don’t become a victim of repeated myths about bankruptcy. Get the facts, investigate what will be the best solution for your situation and then make the best decision for you. In my book, the last resort when facing financial problems should be the worst possible tool to address your situation, not bankruptcy.

Bankruptcy Should Be the Last Resort Many Say. But Thats Just Not True.
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Bankruptcy Should Be the Last Resort Many Say. But That's Just Not True. by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://www.activedebt.com/ Angelo Anzalone

    Great article Steve.  Ive commented before on the risks of convincing consumers to sell assets and retirement accounts in order to pay off their debt, Im not a fan. If their situation worsens they have now lost their retirement.  

    The “last resort” claims will be an issue until the industry realizes the only way to truly act in the best interest of the consumer is to have a better understanding of qualifying/suitability and then be able to offer every solution instead of just pushing one “product”.  Same applies to bankruptcy attorneys who are quick to suggest BK without exploring every other option.  

    • http://GetOutOfDebt.org Steve Rhode

      I agree it’s a two way street.

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