Bankruptcy has become a condemning word that elicits fear, confusion, shame and many more negative emotions. Movies and media help reinforce these emotional responses and add to the already negative stigma this term carries, which often causes people to take great lengths to keep it a secret. If you can put aside all the negative associations you might have with bankruptcy, however, you may see that this word can mean something better for you. It can signify a new start, and even begin to inspire hope and feelings of peace.
Bankruptcy is a legal proceeding to help people who cannot continue paying their debts. Think of it as a surgery to fix a medical condition. It’s something you go through that can be painful and stressful for a moment, but upon completion, you’re in a healthier place and it becomes a thing of the past.
Why do People File?
Understanding reasons why individuals face bankruptcy helps alleviate the negative stigma. In the media, the details of celebrities and large corporations filing for bankruptcy are streamed on the bottom of TV screens and flash on cell phone news alerts. In 2020, 659,881 individuals filed for bankruptcy, but you likely didn’t hear any details about 99% of them. Why choose bankruptcy? Job loss and medical debts, frequently in combination, are among the two biggest reasons people seek to file bankruptcy. Other situations that lead to bankruptcy include divorce, lawsuits from creditors, a home facing foreclosure, and abuse of credit payment. The COVID-19 pandemic caused a significant amount of job loss and medical debt, so it’s very likely that some people you know will consider filing for bankruptcy in 2021. Remember, any situation where an individual is unable to pay their debts could lead to bankruptcy. In our current economy, it’s fairly easy to get into debt that greatly exceeds income. Even the accumulation of small debts, combined with a dire situation such as unexpected medical costs, can push you to a point where you no longer meet your financial obligations. For the hundreds of thousands of people that fell into this category in 2020, filing bankruptcy allowed them a fresh start on their financial journey.
Know Your Options & Empower Yourself
The types of bankruptcy and the rules surrounding them can be complicated, and it’s easy to feel overwhelmed when searching for more information. That’s why it’s a great idea to get help from a professional. Certified credit counselors, like our Financial Advocates, can teach you about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and about available options, including alternative options – for your situation. Learning about the impact on your credit score and financial health of a Chapter 7 versus 13 bankruptcies, as well as potential alternatives, can put you on the best path to overcome a financial hardship. The COVID-19 pandemic taught us that no one is immune to changes in the economy. However, you can let go of any feeling of shame and empower yourself financially by seeking expert counsel and uncovering your options.