Bankruptcy Truth

Many people in debt think “I’ll just file bankruptcy and start over, it’s easy”.  The people who say that are in denial.  Sure, the process might be easy (actually easier than I think it should be) but the hard facts are that bankruptcy will change you life for a long time (by the way most bankruptcy lawyers won’t tell you that part cause even they just want your money).

If you are thinking about filing for bankruptcy or maybe in the middle of it right now, you know it is not fun. But did you know that it could effect your job? Yes it can, many employers frown on bankruptcy of their employees, thinking “if they can’t manage their own finances how will they handle those of the company?” Also, many employers consider financially distressed employees as a greater risk for embezzlement or theft. When searching for a new job if a credit report is run and a bankruptcy shows up, that could eliminate your changes for employment in some companies.

What about your marriage?  Bankruptcy can destroy that.  After all, how can a spouse have full and complete trust in you and  the relationship if money is so badly handled (sometimes secretly) that it comes to bankruptcy? What effect will it have on the kids when you try to enroll them in certain events, if you think no one will know, think again, it is public record.

Bottom line bankruptcy steals your peace of mind, your dignity, your comfort level in looking at yourself as well as how others will look at you, like your friends and family.

A former client of mine was determined to file bankruptcy. In her mind, her debts were overwhelming.  She had a mortgage and $16,000 in credit card debt as well as a $9,000 car loan. She was  46 at the time a single mom with two kids making $40,000 per year.  This poor lady was broke down and worn out and felt she had no where else to turn she thought she was  bankrupt. The truth is, she was not financially bankrupt, but emotionally bankrupt, she was just emotionally exhausted.  She had no budget, no idea of where her money was going and thought she didn’t have enough to go on the way she was.  So I worked with her, helped her design  a good budget.  She realized she had more money than she thought because she saw on paper where her money was going.  Long story short, she did not file bankruptcy and today, 2 years later, she is debt free except for her mortgage.

I don’t recommend bankruptcy.  That would be like recommending someone get a divorce (yes I know people do recommend and even encourage divorce, but I don’t)  Are there times when you may feel like giving up?  You bet.  Many people do give up and go that route because they just don’t know what else to do,  are drained emotionally.  They are too tired to do some “hard work” to get out of debt.  They lack the drive to be personally accountable for their debt mainly because society has made us believe “it’s not my fault” and given us the “bankruptcy out.”

I have friends who have as well as clients who have and are now in debt again.   One client even lost her marriage by not sharing  her financial mess with her husband before she filed, she even thought she could hide filing for bankruptcy from her husband, he found out.

Bankruptcy is listed a negative life-altering event, ranking up there with divorce, severe illness, disability, and loss of a loved one. Although I don’t believe that bankruptcy is as bad as divorce, it is certainly life-altering and leaves deep wounds both to the psyche and the credit report.

Bankruptcy, is for life.  Loan applications and many job applications ask if you have ever filed for bankruptcy. EVER, not in the last 7 or 10 years but EVER. You could lie then you commit  fraud (something else to add to the list of indiscretions),  I don’t know about you, but I have a higher power to be accountable to.

The good news is most bankruptcy cases can be avoided with proper help, such as a certified financial counseling, or even reading the book by Dave Ramsey “The Total Money Makeover: A Proven Plan for Financial Fitness“. As Dave Ramsy says,  and I agree, your money makeover will take some hard work and time, it may involve selling some stuff, it will involve changing your behavior,  it will be painful, but bankruptcy is much more painful and your personal payoff in the end with lessons learned will be priceless.

Most people don’t realize they really do have enough money and don’t need to file bankruptcy.  They just have poor money management habits.  Many people who file for bankruptcy to “start over” end up in debt again within two to five short years, why? Because the lack of money wasn’t the real problem, behavior about managing money was.

I personally have not gone through a bankruptcy, but have been in huge debt.  I worked hard to get out of debt.  Paid off all that I owned, took care of my financial responsibility as I agreed to do when I built up the debt. I learned from the hard work it took to get out of debt.  What did I learn?  Not so spend money I didn’t have (like on credit).  I learned how to manage money…you don’t learn that from filing bankruptcy.  I learned how to change my spending behavior.

Before you make a bankruptcy mistake, write a budget, get a good understanding of your actual financial picture, no lawyer will help you with that, but a financial counselor will.   Seek objective guidance before looking for a “quick fix” you will be far better off in the long run.

Tagged as: bankruptcy, debt management, get out of debt, Money