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Here is something you don’t expect to hear people say, “If you file bankruptcy, your life will get better.”
Well, I did file bankruptcy, and my life did get better. Within three years after our bankruptcy, we had purchased a house and had to rebuild great credit using secured credit cards before that.
And don’t believe me alone, read what the Federal Reserve Bank of New York said in Those That File Bankruptcy Do Better Than Those That Don’t.
In fact, for me, my financial failure and bankruptcy became my greatest strength in helping people. Without my personal bankruptcy, I wouldn’t be here helping you.
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Want to know the one thing I would change about the process? Without a doubt, I’d have eliminated all the fear, shame, and stress that came along with filing bankruptcy. All of that was created by my silly unfounded assumptions about life after bankruptcy. None of it was based in reality; I would come to find out. Unfortunately, my bankruptcy attorney just did a lousy job helping me overcome my incorrect assumptions about bankruptcy.
Famous People That Filed Bankruptcy
When you file bankruptcy you join a whole host of others who have lived through the financial tough times and survived. Not only will you have joined me in that bankruptcy club but also some others you might recognize like:
Entertainers
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Business Moguls and Famous People
Radio, Television & Movie Stars
Politicians
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Bankruptcy Isn’t the End of Your Life.
It’s the Beginning of the Next Chapter.
I’ve been helping people with tough debt problems since 1994. In all those years, I can count on one hand the number of people that played the system—all the other thousands and thousands of people who filed bankruptcy needed to restart their lives.
Nobody runs out and says I’m going to make mistakes and be the subject of an accident, illness, job loss, or natural disaster so they can wind up in bankruptcy. Stuff happens.
Would you rather be poked in the eye with a sharp stick instead of filing bankruptcy? How about lose the love of your life? There are lots of things that are worse.
Let’s look at what filing bankruptcy actually means. First, it means you are seeking the legal protection afforded to you under the law so that you can get a second chance and a fresh start. Second, it is a road from an impossible financial past to a better financial future so you can financially protect your family better and move forward with your life.
Filing bankruptcy means you accepted responsibility for your financial mess, took action afforded to you under the U.S. Constitution, and have made the decision that doing better is the best revenge against failure.
The question you really need to answer is this, “Do you want to spend the next five years trying to fix your financial past and struggle or the next five years building a stronger financial future and creating a safety net for you and your kids?.”
Popular Bankruptcy Myths
So often, I hear people say things about bankruptcy out of total ignorance. They make these statements from assumptions, not reality.
- I Can’t File Bankruptcy. I Have to Repay My Creditors: Nothing about bankruptcy prevents you from repaying your creditors as you can afford to if that’s your wish. But I think you may discover, as I did, that after bankruptcy, your creditors don’t know what to do with your payments anymore. If that’s what you want to do, give it a shot. But at least you won’t be getting collection calls, hiding from creditors, worried about getting sued, fearing a wage garnishment, or getting a judgment against you. All that went away with your bankruptcy.
- Bankruptcy is Immoral: No it’s not. See Is Bankruptcy Sinful and Bad or Right and Moral? An Examination
- Bankruptcy is not Ethical: Really? Take a look at this situation and tell me what was the ethical choice.
- The Bible is Against Bankruptcy: Well that is clearly not true. See What Does the Bible Say About Bankruptcy? Is Bankruptcy Scriptural?
- I’ll Never be Able to Buy a House: Not true. in fact, the reality is that most likely, unless you file bankruptcy, you will not be in a position to save money for a downpayment. You might want to read How Long After Bankruptcy Can I Buy a House?
- I Won’t Be Able to Get Another Credit Card: Actually, what you will find is you will start getting new offers for credit right after bankruptcy.
- My Credit Will Be Ruined for a Long Time: Again, another fallacy. it is actually stupidly easy to rebuild your credit again and have excellent credit. Read How to Easily Rebuild and Repair Your Credit After Bankruptcy. And if you rebuild your credit, it actually won’t matter if it’s listed.
- I Won’t be Able to Get a Job: Wrong. This is just another false statement people make that is not supported by the facts. See Getting a Job After Bankruptcy.
- Bankruptcy Will Appear on My Credit Report: That is actually true. And it will be listed for seven years if you file a chapter 13 bankruptcy and ten years if you file a chapter 7 bankruptcy. But if you are behind or delinquent on your debts, that will be reported for seven years as well.
- I’ll Have to Tell People for the Rest of My Life I Filed Bankruptcy: Well, there are other things you have to report for the rest of your life if asked. How about, did you ever have mumps or chickenpox? So what if someone asks if you ever filed bankruptcy? I would bet if you are reading this, you have a good reason to file bankruptcy. Are you supposed to feel bad for the rest of your life for something beyond your control? Should the farmer who goes bankrupt from lack of rain feel ashamed for the rest of his life? Or how about the airline that filed bankruptcy and praised for taking action? Bankruptcy is an act of people that are being responsible for their lives. Not people running away from responsibilities.
- Bankruptcy Should be the Last Resort: That’s ridiculous. Bankruptcy isn’t in a list of options from best to worst; it is an option. The time to file bankruptcy is when it is the best option for your situation, not the last option. That’s a bit like saying you can only be rescued from a cliff with yellow rope. It makes no sense. You might want to read Bankruptcy Should Be the Last Resort Many Say. But That’s Not True.
- I’ll Lose My Home or Car: Most don’t. But it really depends if you want to keep your home and expensive car though. You might decide it’s best to give it back.
- It will Take Years for Bankruptcy to Discharge My Debt: Not true. About 70 percent file a chapter 7 bankruptcy. In chapter 7 bankruptcy, your debt is typically fully discharged in 90 days.
- I Make Too Much Money to File Bankruptcy: Again, another untrue statement. People of any income level can file bankruptcy, and if your bankruptcy attorney spends time qualifying you for a chapter 7 bankruptcy, most people qualify for it even with high incomes.
- Bankruptcy is No Longer Available: If anyone tells you that, run away. They have no clue what they are talking about. Legal protection under bankruptcy remains available and is written into the U.S. Constitution.
- Bankruptcy Can’t Discharge Credit Card Debt: Wrong. Bankruptcy can discharge (eliminate) both secured and unsecured debt like credit cards and medical debts.
- You Have to Pay Tax on Forgiven Debt in Bankruptcy: No, that is not true. Debt forgiven under bankruptcy is not a taxable event. The IRS says, “If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income.” If you want to read more about this, you can set aside some time and enjoy IRS Publication 908 Bankruptcy Tax Guide.
- I Have to File Bankruptcy With My Spouse: No you do not. Depending on the situation, one person in a legal relationship can file bankruptcy as an individual. You are not required to file together unless something about your specific situation would make it advantageous to do so.
- I Heard I Will Not Be Able to Vote After Filing Bankruptcy: Whoever told you that doesn’t have a clue what the facts are. That is completely untrue. Bankruptcy has nothing to do with your voting status.
- Bankruptcy Can’t Eliminate Taxes: That’s actually not true. Bankruptcy can eliminate taxes owed, including taxes owed to the IRS.
- If I File Bankruptcy I’ll Lose My Bed and Dishes: Not true. If you had something of tremendous value that was not exempt from bankruptcy, then it is rare and doubtful but theoretically possible that the bankruptcy trustee could sell the item to raise cash for creditors. But I’ve never seen a single person that ever had household items sold. Quite frankly, your used bed, linens, dishes, hairdryer, etc., are effectively worthless and not worth anyone’s time to deal with. They may have value to you, but the trustee does not want to be bothered with them.
- I Don’t Owe Enough to File Bankruptcy: Filing bankruptcy is not about the amount of debt you have but the situation and needs you have for legal protection from creditors, collectors, lawsuits, wage garnishments, etc. If it makes sense, you could technically file bankruptcy owing only $1 if the situation warrants it. The amount you owe should never be a factor in determining if bankruptcy is right for you.
- I Only Want to File a Medical Bankruptcy: When you file bankruptcy, you must include all of your debts and liabilities. You don’t get to pick and choose. But that being said, nothing prevents you from including but repaying any creditor you want to.
- If I File Bankruptcy I’ll Lose My Security Clearance: Bankruptcy is not an exclusion to having, maintaining, or getting a security clearance. In fact, the military is quite clear that bankruptcy is a process available under the law and can be viewed more favorably than being in problem debt. For more information on this, click here.
- If I File Bankruptcy I Will Lose My Professional License: I have never met anyone that has. Many lawyers and contractors file bankruptcy. In fact:
A governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act. – Source
- I Will Not Be Able to Rent a Home or Apartment: While it might be slightly tougher after bankruptcy to rent with a large commercial complex, I can’t remember anyone I’ve ever known who has been refused by a private landlord. And I have known people who could rent at large apartment complexes immediately after bankruptcy but had to put down slightly larger security deposits.
- If I File a Chapter 13 Bankruptcy the Trustee Will Have to Approve My Expenses for 60 Months: Not true.
Bankruptcy is a Gift, Not a Curse
It’s time to set aside all the assumptions and wrong information you may hear about bankruptcy and instead start dealing with facts and reality.
Part of that reality is unless you deal with your situation, it can harm you. People remain paralyzed in the worst spot possible between the stress, depression, fear, and guilt of the bad financial situation. Some even develop debt related PTSD. Others develop such stress and depression, get ill, find it tough to work, can’t sleep, or find their relationship destroyed. How is that better than bankruptcy?
Fact: Bankruptcy remains the only debt relief option that is backed by the power of law. It is a right afforded to all under the U.S. Constitution, and with millions of people filing bankruptcy each year, you are not going to be alone. I’m right there with you.
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My oldest brother has been thinking about filing for bankruptcy this year. Thanks for pointing out that not all types of bankruptcy will make him lose everything he owns. That is great to know because he has been really stressed about that. It seems like a good idea for him to talk to a lawyer about his options.
Thanks for this article. We file today, after several years of trying to make it work by downsizing, selling off things; we just couldn’t get that debt down (interest rates). We cared for my mother in law for nearly 4 yrs at the expense of our entire 120k valued 401k and 54k more in debt. I also ended up permanently disabled from her personal care (lifting, etc) It took us a while to accept the new normal of having our retirement be scraping by instead of taking trips because we took care of Mom. Now finally, 6 yrs after her passing we are taking this step to start fresh just one yr before my husband retires. We might end up with 10k in our 401k. We most likely won’t take trips. But doing this will at least allow for us to live modestly with 10% of our post retirement income available for emergencies and home repairs. This is still hard when we thought we’d have 250k in savings and my income for another 7 yrs on top of it (I’m younger). But it makes it a bit easier to breathe. What stopped us from doing it 2 yrs ago was pride, embarrassment and honor. Well, I guess pride does go before a fall and filing is going to allow us to move forward after we hit a financial speed bump the size of a mountain because we took care of family. I for one, am grateful it’s available.
I’m so glad to hear about your better days ahead.
Idk if it’s right or wrong, I can say that I have a family member who filed Chapter 7 and was able to keep their 35,000 pontoon, their 25,000 camper, their house, and just months after filing, she bought a new Ford Escape for 35,000.
The family member and her husband are in the process of filing again,though this time she lost her job as a bank manager and was demoted due to her drinking. My niece and her daughter have multiple Coach purses, and wear miss-me jeans, the list goes on. I don’t see how one can buy a $400.00 Yeti cooler, $200.00 > purses, and $200.00 jeans, then turn around and file bankruptcy, it just seems wrong to me.
While this family member is off enjoying herself in Colorado for two weeks, her lawyer is working on her bankruptcy paperwork.
I’m having a hard time making this decision, my husband lost his job after 14 years of service, he was out of work for nine months and we went bad on credit cards, which is on our credit report. He has a great job now, but the debt has been charged off, killing our credit score.
Anyone would be able to elect to keep items on payments if there was no equity and agreed to affirm the items and pass them past a bankruptcy. As far as being eligible for new credit following bankruptcy, that’s completely up to the lender. It sounds like the underlying issues continued. Debt is never the problem but the symptoms created by the underlying issues.
I can understand why you might be letting that other experience influence your opinion but it’s really apples and oranges and should not influence your decision one way or the other.
You went through Bankruptcy, and therefore obviously know a lot about the process. Your experience was positive, and thus you are a big advocate – which is great, I don’t knock anyone for the way they got out from underneath the shackles of debt. I think there are a lot of misconceptions about any of the debt relief options (Debt management, debt settlement, bankruptcy). That combined with many people not even knowing what their options are, added to the shame that people tend to feel for having to get help with their finances results in a whole lot of people going about getting out of debt the wrong way.
I know that I personally have said something in the past regarding an opinion about how Bankruptcy should be the last resort. I’d like to clarify my reasoning behind that and get your thoughts. I fully admit I don’t know much about the Bankruptcy process, so maybe this will even help clear up some misconceptions I may have.
So, my understanding is that depending upon what bankruptcy process you go through (7 or 13), you may or may not get to keep your assets – but generally speaking you pay back (either through liquidation – chapter 7 or payments – chapter 13) some or all of what you owe. The perception is that it’s usually LESS than what you owe (maybe you know what percentage of chapter 13 bankruptcies actually pay back 100% of what they owe?)
Given the above (that my perception is that through Bankruptcy you pay back less than what you owe), my own personal beliefs tell me that a person should exhaust all possibilities of paying back 100% of what they owe before utilizing court resources and getting a fresh start.
For instance, in my case, I was buried in debt, but still making my monthly minimum payments. I was current on all my accounts. But due to some circumstances, I was about to be in a situation where I could no longer meet all my monthly obligations (minimum payments on some of my accounts were about to be more than doubled). I enrolled in a debt management program, and with the same payment amount (roughly) that I had been making, I would pay off my credit cards in 5 years (currently only 1 year remaining!).
Has it been hard? Sure, getting out of debt (especially when you’re learning to live within your means for the first time in your life) is hard for pretty much anybody. I realize that people get into debt for a lot of different reasons – some of those reasons completely beyond their control. The finger of fault points directly at myself in my personal case.
Would I have qualified for bankruptcy? I don’t know – I honestly never investigated it. Because my gut tells me that if I CAN resolve my debt, and pay back everything I owe without going through the court process, and having debt amounts reduced or discharged, shouldn’t I?
The question I always ask is, shouldn’t bankruptcy be reserved for those people that find themselves so far underwater that there’s just no way they could ever dig their way out?
Thoughts?
Travis,
Ironically if you watch my personal bankruptcy story video it was a tough process for me emotionally. There wasn’t someone like me around then to help put things in perspective.
I love your questions.
Here goes.
The majority of bankruptcy filings are a chapter 7 bankruptcy. This accounts for 70%+ of all filings. Many are confused they can’t qualify for a chapter 7 bankruptcy because of income. That’s not a factual statement. Many can qualify even with high incomes. You just need a bankruptcy attorney to do the long form and factor in obligations. I’ve talked to bankruptcy attorneys that never file a chapter 13. Most lose nothing. Of course every situation is different.
Most chapter 13 bankruptcies either fail or convert to a chapter 7. They fail for the same reason debt management plans fail for the majority of consumers. Even the NFCC estimates yesterday were only a 50% success rate. You and I both know that figure is grossly inflated.
An extended payment approach that leaves people tight will fail when someone runs into an unexpected event in the next five years.
Your perception that people can’t pay back 100% of what they owe is not accurate with bankruptcy. There is nothing that prevents someone from getting the relief allowed under law and then repaying their creditors as they can reasonably afford to. That’s what I tried to do. Some of my creditors actually asked me to please stop sending the payments. They didn’t know what to do with them.
I don’t fault you for the path you took, at all. Hell, I used to run a credit counseling agency. I get where you are coming from.
I think you are a very smart guy who really cares and did what you felt was best for you.
But there are more considerations in getting out of debt, in my opinion, other than being able to make just the minimum payment.
For example:
How long do you need to punish your future for a past mistake?
Is it better to learn from the situation and do better moving forward?
When digging out of debt what retirement sacrifice or financial safety net hole are you willing to take on to meet some moral obligation someone feels now?
The question I would be most interested in you investigating is if you made the decisions you did out of a emotional assumption or because it made the best financial sense for you and your family.
I get your question but the question I think is more important is to ask people if they have a greater responsibility to sacrifice the next five years to try and fix the past or learn from the situation and fix the future so they and their family are financially safer tomorrow and down the road.
But hey, that’s just me.
I think you’d enjoy https://getoutofdebt.org//33451/is-bankruptcy-sinful-and-bad-or-right-and-moral-an-examination
And if you want a really tough read, see https://getoutofdebt.org//46537/did-the-nfcc-dementia-client-of-the-year-do-the-ethical-thing
I will certainly check out your links above. To answer your question, I can honestly say that I thought I was staring bankruptcy in the face, was terrified, and was looking for some other solution to my financial situation.
It worked out for me, but as you say, every situation is different. I think we agree that the best thing people seeking debt relief can do is to research and become educated on every option and then make an informed decision.
The answers to your questions concerning how is it better to fix a past mistake or fix your future is certainly easy from a debtor’s perspective….but from the perspective of the credit card companies who’s money got spent and would not get paid back it’s a bit of a different perspective.
I believe that people should take responsibility for their past mistakes to the greatest degree that they can. If they are insolvent, then we have the bankruptcy process.
I understand that nothing stops someone going through bankruptcy from paying back 100% of what they owe, but you saw what happened when you tried to do just that……they didn’t know what to do with your money because people just don’t do that.
I believe we also agree that bankruptcy is a viable debt relief option, but it sounds like we may differ a little bit on where the line is for where bankruptcy is appropriate.
It also occurred to me that people that read my writings or listen to me talk about debt relief may think I would advocate a DMP as the end all, be all debt relief option – when that isn’t my opinion at all. It worked for me and I want to work tirelessly to help people realize that it IS a viable debt relief option. You went through bankruptcy, and see how it is portrayed as an absolute evil by so many people and you work tirelessly to change that opinion.
Maybe we still differ a little bit on where the line is too. 🙂
But when you boil it down to it’s base, the underlying theme of your post is to commend people that decide to take the first step towards doing something about their debt – which is a very, very hard thing to do.
After being held hostage by judgments, collectors, and the absolute misery of living in dire poverty where you cannot even go to the grocery and buy food, bankruptcy is like being freed from prison. Thank God we have this legal protection.
Exactly.
I don’t really mean this lightly, but I always suggest that if it’s going to take you 10+ years to get out of credit card debt paying over the minimum, you need to declare bankruptcy. People make it sound so bad and say “you’ll be publicly defamed by the newspaper! It’s public knowledge!” Yea, who cares? It’s a small blurb in the newspaper and only older folks actually read it anyways.
I don’t have to declare bankruptcy, but I encourage anyone who feels stuck in their debt to look into it. Don’t ruin your life.
And the reality is that it’s only some local community newspapers that might list it. It’s not a requirement, they just choose to do it for readership.