Is Bankruptcy Scary?
Bankruptcy scares people. In fact, even people up to their eyeballs in debt, are scared witless by the thought of filing bankruptcy! It seems absurd almost.
What ‘s so scary about filing bankruptcy?
There are three unspoken fears about bankruptcy:
- -loss of control over financial affairs
- -the future with a bankruptcy on their record
- -public exposure as a failure with their finances
Let’s look at these scary aspects, in broad daylight and see if there is anything worthy of tremble and fear.
Loss of control
Filing bankruptcy passes nominal ownership of everything you have, outside of some kinds of retirement assets, to the Chapter 7 trustee for the benefit of your creditors. On the surface that does sound kind of scary. However, nearly 98% of Chapter 7 cases are no asset cases. That means that the debtor loses nothing to the bankruptcy trustee on behalf of creditors.
This is because their possessions have little net value or an exemption protects the asset for the debtor’s benefit.
In some situations, it may be hard to tell what assets are worth or whether they are saleable. The uncertainty makes it unpredictable to pass control to a trustee. That’s a case for a Chapter 13 because the debtor keeps everything he wants to keep, and pays some fraction of their value to creditors over time by cash. The debtor proposes the plan, suggests the values, and can get out of bankruptcy if the case should take an unexpected turn they weren’t hoping for.
Future credit in doubt
The commercials that try to sell you some for-profit solution to your debt problem scare you by saying that you’ll never get credit again if you wipe out your debts in bankruptcy or they tell you you’ll have to wait a good ten years before you can get credit, but it’s nonsense.
Bankruptcy makes you almost instantly a better credit risk than you were before you filed. Does that sound crazy? The reason is because now there are fewer demands on your income.
Bankruptcy is more expensive right after filing, but all things being equal, the cost of borrowing goes down the farther out you get from bankruptcy.
The truth is the availability of credit and its cost depends on a lot of things and no one can predict them all.
However, this is a hard cold truth you should know…. loaded with debt, you probably couldn’t get more credit now even if you didn’t file for bankruptcy. SCARY!
Bankruptcy may make you feel as if you’re going to be drug out to the town square to be tarred, feathered and ridiculed, but this is simply not true.
Most of that view of bankruptcy is all in your mind. Bankruptcy cases are in the public record, and anyone who wants to find out can find out, BUT, how much time do you spend figuring out which of your neighbors and coworkers have filed bankruptcy? See? Nobody cares! And, anyway, you would also be surprised at how many people, famous and anonymous, have filed bankruptcy themselves. Studies show that job loss, divorce, and illness account for a large percentage of debts leading to bankruptcy. You are NOT the only one to ever travel this road and it doesn’t make you less of a person!
These absurd fears need to be knocked down a notch or two or three!
Not so scary
Bankruptcy is nothing to be afraid of but not fixing a problem that has a solution is!