Afraid to File Bankruptcy? You Might Already Be There.

08 Jun Afraid to File Bankruptcy? You Might Already Be There.

Bankruptcy is a tough pill to swallow for anyone. The word bankruptcy means “failure” to people more often than it means “fresh start.” That’s good marketing by the credit industry, but it isn’t the truth.

If you’re in trouble, you need to know when and how it started. It was much further in the past than you think. It was not when your credit cards raised the interest rates. It wasn’t when the layoff happened and you could not make the minimum payments anymore. It was not when the mortgage company issued the foreclosure notice.

It was probably the day you started carrying debt for short-term expenses without being able to easily pay it off from income or savings quickly. It was the day you couldn’t pay off the credit cards in full quickly — without borrowing from somewhere else. That was the day you began down the road to bankruptcy because that was the day you tipped from paying-as-you-go to owing-as-you-go. And that was the day you gave your creditors power over you they didn’t have before.

Obviously borrowing money you can’t payoff quickly is reasonable in some situations. Buying a home or a long-term asset like a car often require long-term debt you can’t pay off next week or next month. But when you are buying your basic needs, like groceries, or clothing, on credit and not paying it in full each month, then it ought to be obvious you are not breaking even.

Even if what you buy on credit is related to long-term things, it can be an indication you are having a problem. A home repair or new tires on a car are long-term investments in those things. But good budgeting would demand that you have set aside money each month to cover those expenses. You always knew you should have some savings to cover it, right? If you didn’t, you were living off the depreciation — the wear and tear — on the home and car without any way to recover that loss except borrowed money.

Also borrowing money on credit cards to fund a business can also be a good idea. But it’s remarkably dangerous since most new businesses can’t start turning a profit as fast as the credit cards accrue interest.

It was easy for the last 10-15 years to ignore these simple realities. Credit card lenders made the minimum payment ridiculously low in comparison to your total debt. And the real estate bubble made it way too easy to just refinance and cash-out the payoffs for your other credit. And as long as you planned to work until you were 95 to pay off that new mortgage, it makes sense.

In reality, a lot of people who are not filing bankruptcy are in fact bankrupt right now. If they don’t get a raise, a large inheritance or a lottery win, they’ll spend a good part of the rest of their life with debt they can’t pay off and they’ll be at the mercy of their lenders every day. In reality, they work for their creditors but don’t get the health plan.

So when you feel badly about considering relief from your debt through the Bankruptcy Code remember — it’s about relief. It’s about getting control of your life back. It’s about having a future. Don’t let your pride keep you from getting help.

Photo Credit: Richard Broderick

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:

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