Why Does Bankruptcy Have a Stigma? Unraveling the Myth

Bankruptcy—it’s a word that can send shivers down your spine, right? The question is, why does bankruptcy have a stigma? It’s not just about the money; it feels more profound than that.

It touches on something deeper – our sense of self-worth, our place in society, and fears of public perception. This is something many people don’t want to talk about, including why bankruptcy exists and why people feel the way they do about it.

The Historical Roots of Bankruptcy’s Image Problem

Historically, people saw bankruptcy filings in an incredibly negative way. Debts were often seen as personal obligations with dire social or religious overtones. People who filed for bankruptcy were even punished in prisons and with public shaming, such as degrading public rituals. Officials talked about bankrupts with contempt, using derogatory labels that diminished them to nothing more than criminals.

Fortunately, this has changed in modern times. While bankruptcy may never be seen as an ideal situation, it is now looked at as a “fresh start” instead of a moral failing. 

Bankruptcy’s Shift in the Modern Era

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced many challenges. Yet the core idea remained that bankruptcy could serve to get things back on track.

We see continuing efforts, too. In 2020, lawmakers brought forward The Consumer Bankruptcy Reform Act of 2020.

Proposals that can further reshape the process are being worked on and discussed daily. The message is that the law recognizes the reality of the hardships people are living through, and that it shouldn’t mean living forever in financial ruin.

When Is Bankruptcy The Best Option?

Financial advisors sometimes shy away from this option for many people, even if there might be the potential for the benefit from the option. It is critical to address personal finance problems and not delay.

Chapter 7 bankruptcy could fully clear many forms of debt, often in just 90 days. Chapter 13 can offer ways for making payment schedules more practical for debtors.

But creditors use propaganda, promoting the idea is that anyone filing is lazy, dishonest, or acting like a criminal. This contributes to the social stigma surrounding bankruptcy.

Why Does Bankruptcy Have a Stigma in Our Minds?

One huge thing that plays into this today is the feeling that some people think “debt is the fault of bad behavior and bad people.” Creditors are more than happy to play on this emotion, which contributes to the stigma surrounding bankruptcy.

Debt collectors use psychology against people who are behind. The person calling will intentionally target the areas that tend to affect the most to shame you, but collection agents do have certain tactics.

It may surprise some people to learn that debt is frequently something people have no control over. It could result in major impacts on the family and on friends if not managed in time.

Many think bankruptcy could be for people going wild on credit card use with minimum income and bad shopping decisions. But the reality is most are hard-working folks facing unforeseen circumstances.

They often do it out of desperation, because they have used all available finances like friends, relatives, and selling assets, just trying to take care of daily necessities. Many people face hardships due to job instability, which adds financial difficulty and may lead to unmanageable financial obligations.

This then triggers massive expenses and big medical bills, because many do not have good health insurance coverage. These are typical scenarios of the hardships impacting the public in a normal community, leading to financial strain.

Is Filing for Bankruptcy Really That Public?

Filing bankruptcy does become part of the public record. This means the information is accessible to anyone who goes through the proper channels, such as searching court records. While there isn’t a public announcement, the filing itself is documented in federal bankruptcy court records, which are open to the public.

The good news is that most interacting with a filer have zero awareness unless there’s intentional efforts. Privacy policies in most workplaces also protect the debtor’s personal information. 

The Common Concern – “Am I Bad for Doing This?”

Feeling bad after declaring bankruptcy has little do with the morality and ethics of things. This is more frequently due to stress.

Many think those with lower status from monetary challenges has inferior capability for achieving goals. However, our achievement has more to do with rebuilding a platform from financial challenge than the actual wealth we display.

Bottom line: Declaring bankruptcy can be like hitting a financial ‘reset’.

Feeling “Truthful” After Bankruptcy

It takes courage to use the solutions set in our legal foundation. Many have perceptions such as doing opportunistic approaches or not living up to contractual requirements with creditors, but this does not take away from the fresh start bankruptcy provides.

Financial Decision	Possible Impact	Personal Impact
Using 401K to Avoid Bankruptcy	Depletes retirement	Possible Short term resolution
Getting funding from close contacts	Risk damage relationships if money challenges aren’t fixable.	Guilt if no resolution possible.
Selling key Items for Life Needs	Assets disappear long term fix, less probable	Feelings diminished, things will turn
Filing for bankruptcy	New Opportunity, less stress	Feeling Honest on new financial ground level

 

Rebuilding Credit After Bankruptcy 

Credit reports document a 7 to 10 year window as far as impact for bankruptcies. Many worry lenders have permanent concern and credit gets eliminated, leaving no further way for funding when needed.

But a surprise occurs here to many. After it’s processed and settled out, lending providers often see *more*, not *less*, trustworthiness.

Filing means taking control. Working with a bankruptcy attorney can also help develop a debt management plan to help rebuild your credit score.

Conclusion

Why does bankruptcy have a stigma? It boils down to factors ranging from past views where things were far less forgiving, the words we commonly hear tied to money problems, that leave us down, all the way to simple uncertainty.

The social stigma exists and this can make people hesitant to file bankruptcy. Bankruptcy, as established, works.

Addressing financial problems and obtaining a bankruptcy discharge helps with rebuilding more effectively. You could be helping yourself and family members have a brighter future. Contact The Law Office of William Waldner for a free consultation.