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Why Shame is Keeping You from Filing Bankruptcy (and Why It Shouldn’t)

So you’re in debt. Creditors are calling. You’re losing sleep and wondering how you can possibly dig yourself out of this financial hole when you can’t even make the minimum payments on your credit cards. You’re considering bankruptcy but you can’t get that nagging thought out of your head:

If I declare bankruptcy, I’m a deadbeat.

There is a reason you think this. And it’s not because you are a deadbeat.

If you stepped into a time machine with your mountain of debt and traveled back to the 18th century, you might be surprised to find George Washington, Thomas Jefferson and other founding fathers very sympathetic to your situation. Contrary to the prevailing view at the time, the signers of the Declaration of Independence felt strongly that well-meaning people might face economic misfortune or make unfortunate financial choices. While it wasn’t until the Bankruptcy Act of 1898 that our right to bankruptcy relief was firmly established, the idea that a person deserves relief from debt is a time-honored and uniquely American view.

So how did that view, with such a long tradition and positive history, acquire such a negative connotation? Who could possibly be against debt forgiveness for honest people?

Creditors, of course. Creditors with deep pockets and large marketing budgets and armies of high-paid lobbyists.

The credit industry likes to stereotype people who declare bankruptcy as deadbeats who exploit legal loopholes to avoid their moral responsibilities. But the facts tell a different story.

People from all segments of society file for bankruptcy. Single parents and dentists. College students and retirees. Families living in big houses and single folks renting apartments. Many find themselves in financial crisis after losing a job or receiving an unexpected hospital bill. (One of the fastest-growing segments of bankruptcy filers are Americans age 65 and older who are facing huge medical expenses.) And many of them try very hard to pay their debts before finally resorting to bankruptcy.

The credit industry, in its efforts to paint people who declare bankruptcy as irresponsible, also conveniently overlooks its own reckless behavior. In the past, credit card companies were known to stake out space on college campuses and approve applications even when students didn’t meet the criteria. No job? No verifiable income? No credit history? No problem.

Thankfully, Congress put some restrictions on this aggressive marketing in 2009, but college students remain an important target for credit card companies, which happily extend credit to high-risk prospects so they can benefit from excessive interest rates. These students are likely to get in over their heads and declare bankruptcy down the road, but for credit card companies, the short-term gain is worth the long-term risk—even as the industry plays the victim in order to lobby for legislation like the controversial Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which restricted consumers’ access to bankruptcy.

Bottom line: If you have no way to pay your bills while maintaining a reasonable standard of living, don’t allow shame to prevent you from changing your life for the better.

This is not to be intended as legal advice for your situation. If you would like to schedule a free consultation with our bankruptcy attorney to discuss your personal circumstances, contact us.

Hillary BakerComment