reasons people are scared of bankruptcy atlanta bankruptcy lawyer

Top 5 Reasons People Are Afraid to File for Bankruptcy Protection

Many people in the United States are afraid to file for bankruptcy because they do not understand that most people who file are financially better off in the long run. After filing, most people see their debt erased and their credit scores improved.  Despite all these facts, people are still afraid to file because they think that it means they’re admitting they failed in some way. Nothing could be further from the truth. The biggest reason people file for bankruptcy is that they experience some sudden financial shock. These include job loss, medical illness, divorce, small business failure, and family emergency. Most people file for bankruptcy because they experience an event that occurs at no fault of their own.

After almost 20 years as a practicing bankruptcy attorney and helping thousands of Georgia consumers through Chapter 7 and Chapter 13 bankruptcy cases, here are the top 5 reasons people are afraid to file bankruptcy in order to get a fresh start on their life.

Reason #1: If I file for bankruptcy I am a failure and I am better than that.

Letting go of your ego and your pride is hard. Plain and simple it is really hard to admit that you have hit a wall and need help. Some people are so proud, they will never accept a handout. Whether from friends, family, or the government, they would rather struggle than admit that they need charity. That is just not a good way to look at life. Government programs, including bankruptcy, exist to help people in their time of need, and these safety nets can be an essential way for some people to get back on their feet.  Our society is one that is set-up to make sure people don’t fall through the cracks.

Drowning in debt and being harassed by your creditors can prevent you from moving forward.  Does your pride and ego come before your family’s well being? Is it better to struggle to pay off credit card debt with 29% interest than save for your child’s college? While we all want to honor our debts, life happens and if you are unable to provide for yourself and your family then you need to take whatever steps necessary to correct that. If bankruptcy will allow you to get back on track then you need to put your ego to side and analyze this situation from a logical prospective. 

Reason #2: If I file for bankruptcy it will ruin my credit and I will never have good credit again.

It’s true that any negative information on your credit report will remain on your credit report for ten years from the date that you file your case.   However, it is not true that, simply because a bankruptcy appears on your credit report, you’re credit is destroyed or “ruined” for ten years.   Bankruptcy helps people resolve financial problems.   If you can’t pay your debts, your credit rating is probably damaged already and will continue to get knocked around until your do something about your debt. And if you’re up to your eyeballs in debt, who would ever give you a loan?   Don’t let your credit rating get in the way of getting help.

It is pretty much common knowledge that filing for bankruptcy is going to damage your credit score.  How much it will lower your score is hard to say; I have noticed that for those bankruptcy clients who have low scores when we file their case (550 or lower) that the bankruptcy doesn’t lower the score that much more – typically another 30-50 points.  However, for those clients who have decent credit (700 or higher) they usually take a hit in the range of 100 – 150 points.  I don’t know why this is or what the formula is for calculating this, but this is what I have observed in the hundreds of bankruptcy cases I have filed.

While bankruptcy will absolutely lower your credit score, most of my clients are surprised to see that their score will actually increase within 12 months of their bankruptcy case being discharged.  Most who look to file for bankruptcy are behind on their bills.  When you fall behind on your credit card payments each month the credit card company lets the credit bureaus know that you are late.  This lowers your score and continues to hit you month after month.

The filing of a bankruptcy stops the bleeding.  You are no long getting hit each month with a “late”.  You will get hit with a bankruptcy on your credit report, but that is a one time thing; it is not re-reported each month.  The further you get away from your filing date the better you will be.

Reason #3: If I file for bankruptcy I will never be able to purchase a home.

Most lenders will approve people for mortgages two after your case is over.   My mortgage friends now tell me that they can put people in a home as soon as 6 months out of bankruptcy.   Your credit will improve quickly after bankruptcy because your debt to income ratio is now amazing.   If you have financial problems, deal with them. Bankruptcy may be one way to do that.  

Reason #4: If I file for bankruptcy my friends, family, and neighbors will find out.

I must recite “Your bankruptcy is not Googleable” about 10 times a day.   Unless you’re famous, chances are very good that the only people who will know about a filing are your creditors.  While bankruptcy is of course a public record, those records are stored on a system that requires a username and password. Unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed.  Unless your friend or neighbor also files bankruptcy and you see them at court, they’ll almost certainly never find out you filed bankruptcy. 

Reason #5: If I file for bankruptcy I will lose my job

Your employer cannot fire you just because you filed for bankruptcy. The law prohibits both government and private employers from terminating your job due to your bankruptcy filing.  

The law also prohibits discrimination with respect to your employment because of your bankruptcy. While this does not necessarily cover hiring decisions, it does mean that if you are already employed, you can’t be treated differently just because you filed for bankruptcy. It doesn’t matter if you work for a government agency or a private company. The law applies to both.

Bankruptcy is a core feature of American history. Our Founding Fathers believed in allowing everybody to get a fresh start because they saw that people in England were sometimes thrown in prison for their debts. They wanted to create a better option that went more in line with what it means to be American.  The United States is also full of success stories of people who filed for bankruptcy and then were able to turn around their lives. Here’s a list of famous authors, artists, businessmen, athletes, and actors who, too, have dealt with financial struggles.

Thomas Jefferson: One of our founding fathers filed bankruptcy several times. While he helped create an inspired form of government, he was very poor with his money, spending large amounts on food and wine. P.T Barnum: Though he is best known for being the amazing showman who co-founded “Barnum and Bailey Circus”, he dealt with many financial struggles before his rise to fame. He filed for bankruptcy in 1871 due to bad business investments before organizing “The Greatest Show on Earth” in 1881.Mark Twain: Otherwise known as Samuel Langhorne Clemens, he invested most of his money in a contraption called the Paige Compositor that was created as an automatic typesetting machine before becoming the writer we know and love today. When this venture did not prove to be fruitful, he filed for bankruptcy in 1894 to discharge his debts. He did not forget his debts, however. He traveled through Europe lecturing for four years in every major city and used this money to repay all of the people he owed money to.Henry John Heinz: Filed for bankruptcy in 1875 after a year of poor harvest, where he could not meet the growing demands for his condiment products like horseradish, pickles, and sauerkraut. After his financial recovery, he introduced a new product to the market, tomato ketchup, and his company to this day is still very popular.Abraham Lincoln: Due to a failed business the eventual 16th President of the United States filed bankruptcy in 1833. Bankruptcy laws were much different than we have now and he was forced to repay his debts over 17 years.Milton Snavely Hersey: Mr. Hersey started four candy companies that failed before creating Hersey’s Food Corporations. He filed bankruptcy after his candy companies failed.

Henry Ford: The automobile manufacturer had two failed attempts at automobile companies before creating the name we all know today. He filed for bankruptcy after his first company failed due to a disagreement with a business partner. 

Jerry Lee Lewis: Though a famous musician, he managed to dodge the IRS for quite some time. Having racked up quite a bit of debt, he filed for bankruptcy in 1988 when the IRS then seized his cars, furniture, piano, and even collected concert ticket sales.

Burt Reynolds: This famous actor filed for bankruptcy in 1996 after his ugly divorce from Loni Anderson, having piled up over $10 million in debt. Despite his bankruptcy, losing his dinner theater and his ranch, he has continued on to be a famous actor and won a Golden Globe for Best Supporting Actor in Boogie Nights.

Mike Tyson: After spending nearly $300 million of his earnings, he filed for bankruptcy in 2003 having racked up $27 million in debt.

Larry King: This famous actor filed for bankruptcy in 1978 after a Wall Street scandal. Fortunately for him, he was able to get back on his feet with his show Larry King Live and make a full financial recovery.

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