Most people in debt are, at least initially, resistant to filing bankruptcy. Filing chapter 7 or chapter 13 is sometimes viewed as taking the easy way out, or looked at as a good way to ruin credit scores, or as a moral failing to be avoided. These feelings, combined with the inability to pay debts, result in a great deal of stress.
The fact is that people do have pride, and no one wants to file bankruptcy if it can be avoided. As a result, most consumer bankruptcies are filed by people who have been bothered by collection phone calls or even lawsuits by creditors. In short, bankruptcies usually are filed when there is no reasonable alternative except asking the bankruptcy court for relief.
Does this mean a person gives up his or her pride by choosing to file bankruptcy? Is it really a shameful thing to do? And what standard should be used in evaluating whether filing bankruptcy is the “right” thing to do?
Everyone has to decide for themselves what’s most important but if you have to choose between supporting your family or making monthly payments on credit cards and lines of credit, it might be more reasonable to decide in favor supporting the family.
Maybe this sounds a little too convenient, though. Let’s use a different standard, then, one developed by Congress: what really happens in a chapter 7 or chapter 13 bankruptcy? Remember, not all debts are discharged in bankruptcy, not all property can always be protected, and not everyone can file any type of bankruptcy they want. The purpose Congress was trying to serve in enacting the bankruptcy laws was the proper balancing of the need of a debtor to support a family compared to the need of certain types of creditors to get paid back.
Not all debts simply go away in bankruptcy. Congress decided that some creditors should get paid, no matter whether the debtor can afford to pay the debt or not. For example, Congress decided that if the bank has a mortgage on your house or a lien on your car, you still have to pay the loan even if you file bankruptcy.
Another example are income taxes — Congress says recent back taxes don’t go away in bankruptcy. But older taxes may be dischargeable. Congress has also decided that child support shouldn’t be discharged in bankruptcy.
The type of debt most people seek bankruptcy relief for are credit cards, bank loans and lines of credit. But in contrast to the examples above, Congress decided credit cards and similar debts can be discharged in bankruptcy. Why are some debts treated differently by Congress? Think about the credit card company you owe $10,000.00 to — did that bank take a mortgage on your house to secure payment? Did that bank charge five percent interest, like on your mortgage, or did it charge twenty-five percent? Did the credit card company verify your employment and income level, or did it simply send out credit card applications to see who would respond?
The point is that bankruptcy laws already contain a balancing of competing interests. When struggling with the decision of whether to file bankruptcy, don’t feel you have to decide between right and wrong, all by yourself, using only your own family’s needs as a standard to guide you. Remember, the rest of us have a stake in whether your boat rises or falls. Our bankruptcy laws already impose a test for which debts are important and which are not. If you’re choosing between buying groceries or paying Wells Fargo, there really shouldn’t be a need to think about it further.