Are you thinking about filing for bankruptcy? Are you afraid of the stigma associated with it? Is the stigma of bankruptcy preventing you from benefiting from what could be the best option for addressing financial problems? Did you know that our bankruptcy system is enshrined in the U.S. Constitution?
Emotional and Social Stigma
This aspect of stigma does not affect your money in any way. It is about how people perceive you. So, if you are someone who cares a lot about what others think of you, social stigma may hold significant weight. However, you should be aware that even though all your creditors will know about your bankruptcy filing, it is unlikely that other people will find out. Although bankruptcy cases are public matters, most people do not go looking for individuals who have filed for bankruptcy. Even if people find out about your bankruptcy, you may be surprised at how understanding they can be, especially in tough economic times. You might even discover that some of your friends or family members have filed as well. According to some estimates, more than one in ten adults in the United States may file for bankruptcy at some point. Keep that in mind the next time you sit in a parent-teacher meeting.
Financial Stigma
The financial stigma associated with bankruptcy is the aspect that can impact you. For example, after you file for bankruptcy, your credit score will generally drop. How far? That depends on where you started. According to some estimates, the credit score for most people filing for bankruptcy settles around 550, regardless of where they began – but if you are careful, you won’t stay there for long. You may find it more challenging to obtain credit, such as a car loan or a mortgage, and when you do get credit, it will likely cost you more in the form of higher interest rates.
Weighing Benefits Against Stigma
Of course, it’s important to weigh the pros and cons of a bankruptcy filing. In the end, many people decide that the benefits far outweigh the costs, especially when those costs are mostly social or emotional stigmas. When considering your options, you should keep in mind that the bankruptcy system was created by Congress as a safety net to catch all those who have fallen to the bottom of their economic lives and need a lift. Like the 544,463 cases filed in 2020.
Without bankruptcy, the entire financial system could collapse. This is because there would be no “exit,” and if you are overwhelmed with debt, you would be stuck with it for life. You will survive if you are willing to ignore the stigma. There is no shame in utilizing a system set up by the government to aid those suffering from severe economic distress.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts found in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.
U.S. Courts. “Process – Bankruptcy Basics.”
American Bankruptcy Institute. “Bankruptcy by the Numbers,” page 48.
U.S. Courts. “Bankruptcy Filing – Bankruptcy Basics.”
U.S. Courts. “Annual Bankruptcy Filings Decline by 29.7%.”
Source: https://www.thebalancemoney.com/bankruptcy-still-carries-stigmas-but-it-shouldn-t-316106
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