4 Misconceptions About Personal Bankruptcy: The Not-So-Ugly Truths About Going Chapter 13

Published on September 19, 2014, 3:20 pm
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While most financial analysts agree the US economy is headed towards recovery, it is still a sobering reality that 1 in 55 households will file for personal bankruptcy this year.

Personal bankruptcy is not only financially crippling, it is also socially stigmatizing – which comes as an additional blow to those already down and out.

While the societal stigma of going financially “belly-up” remains the same, the causes of bankruptcy and the realities of dealing with it have changed over the years. The truth is, filing bankruptcy is not a last resort of truly desperate people; in most cases, it is actually a recommended financial strategy for beginning life anew.

To set the record straight, here are some common misconceptions about personal bankruptcy.

01.  Reckless spending and lack of financial self-control causes bankruptcy.

While many of us believe bankruptcy is caused by reckless spending or a poorly financed mortgage, in most cases the financial hardship is usually something that is not so controllable ­ an unexpected medical expense for instance.  A study by NerdWallet Health earlier this year jived with my own findings as a bankruptcy lawyer; overwhelming medical bills are the single major cause for personal bankruptcy today. More than one-third of Americans simply have no savings for this type of expense, so a medical scare can easily lead a household into insolvency.

02.  Bankruptcy means losing everything you have – even the roof over your head.

While laws vary by state and there are different types of bankruptcy filing classes, in general a debtor’s “key properties” are protected. A home, qualified retirement savings, and the shirt off your back are typically safe from the bill collector’s grasp. It is important to check with a bankruptcy lawyer to see what individual property is secure. Far too many people do not investigate bankruptcy as a viable option merely because they are afraid of losing everything, which is just not the case.

03.  I will be the laughing stock of my neighborhood.

While the act of filing for personal bankruptcy does become part of the public record, chances are, your neighbors are not expending the time and effort to seek this type of information out. The only parties that will learn about your bankruptcy declaration are your creditors, so unless you “officially” owe your family or friends money, they are not likely to learn about your filing. The truth is, bankruptcy is the first step in the process of taking responsibility for your credit and get your life back into order; something friends and family should applaud, not shun.

04. Life is not worth living after bankruptcy.

While your bankruptcy filing will be a blemish on your credit report for up to 10 years, it does not spell the end of your ability to enjoy living. The beauty of bankruptcy is, once you declare it, you can begin moving forward on the process of building a new life ­ which sure beats the heck of dodging creditors and suffering sleepless nights. It is true, your road back to good credit will not be without hardships ­ you and your finances will need to forge a new relationship. The limited credit extended to you will carry extremely high interest rates and fees. But people do bounce back from bankruptcy all the time.

Obviously, maintaining your household’s financial health is goal to be strived for. But for those who face unexpected expenses from illness, extended unemployment or divorce, filing personal bankruptcy is an option to considered, sooner rather than later, and with a realization that it is a positive step toward recreating a solid financial future.

For more information, please contact the Law Office of William W. Waldner by visiting here.


Jonas Bronck is the pseudonym under which we publish and manage the content and operations of The Bronx Daily.™ | Bronx.com - the largest daily news publication in the borough of "the" Bronx with over 1.5 million annual readers. Publishing under the alias Jonas Bronck is our humble way of paying tribute to the person, whose name lives on in the name of our beloved borough.