Is Filing Bankruptcy Wrong (Ethically, Legally, Morally)?

Is Filing Bankruptcy Wrong (Ethically, Legally, Morally)?

Is filing bankruptcy wrong morally, ethically, or in any other way? Especially right now, with everything that’s been going on with the economy, people are considering their options. 

“Okay, what do I do financially? The economy’s not doing well. All these people have lost their jobs. What am I going to do either personally or for my business? Should I file for bankruptcy?” People are researching this and asking themselves, “Is it the right thing for me to do?” 


Where bankruptcy originated

Over the years, I’ve noticed that people have a very negative stereotype of bankruptcy. Yet the idea of forgiveness of debt every seven years actually came from the Bible. So this is something that’s been around for thousands of years and that’s where the idea of bankruptcy came from. 

Over the years, it’s developed and it’s a federal system throughout the entire United States. There are some differences by state but basically it’s a federal system of bankruptcy courts to allow people to get a fresh start. There’s nothing necessarily morally or ethically wrong with doing this. 


What creditors know

Creditors understand it. They know that it’s going to happen to them and they plan for that. Let’s say you file bankruptcy, a chapter 7, which liquidates and gets rid of most if not all of your debt. When you come out of a chapter seven, four to six months after you filed, you get a discharge of your debts. 

At that point, you’re actually a better potential client of a credit card company or any type of creditor as long as you show that your finances are stable again. Yes, your credit score took an impact by filing a bankruptcy. But most people, if they’re looking at filing a bankruptcy, probably already had bad credit or it was going down.

Why you may be a better credit risk after filing

And yes, your credit score will take a hit from filing bankruptcy, but there are steps you can take to restore your credit within a short time after filing. As a result, a creditor looks at you after filing bankruptcy and says, “Okay, well, let’s just make sure that they’re on the right track and their finances are getting in order. And they can’t do this again to me for seven to eight years.” 

It depends on what’s filed and some other factors, but basically, it’ll be quite a few years before someone can file another bankruptcy. Once you file a bankruptcy, you’re prohibited from filing again for a period of time. And creditors know this. And once you show them that your finances are in order, you’re probably in a better position to be a potential client or creditor of them because you’ve also gotten rid of all that other debt. 

How long will it stay on your record?

Yes, it will be on your record. If someone does a background check, depending on the type, it will show. It’s a public record. It’s a court case in the bankruptcy court showing that you filed a bankruptcy case and that you got a discharge of your debts. That stays on your record for up to 10 years. After that, it comes off your record. It’s no longer on your credit report. 

Some background checks will still show that there was a case filed at some point in the past, but technically, after 10 years, it would come off your credit report. And so, eventually, the fact that you filed does go away, and you get a fresh start. 

Most people who file need help

Most people who are looking at filing bankruptcy need something. They need some way to improve their situation, but they don’t know how. And they think of a negative stereotype of filing for bankruptcy because it means “I’m broke; I can’t pay my debts.” 

Our current president, Donald Trump, has used the bankruptcy courts and filed bankruptcy for his businesses to help restructure their debt and get out of bad financial circumstances. And maybe you didn’t even create the financial circumstances. It’s not that you’re a bad person. It’s that your finances are not in good shape right now and there’s a legal way for you to fix that. 

Most people feel relief after filing

So there’s nothing wrong with filing for bankruptcy, and usually, most people come in after they’ve filed and they feel just a relief because all this debt that was burning them down is now gone. They might still have some financial struggles, but at least they’ve gotten rid of a large majority of them. 

In addition, they’ve given themselves some time during the bankruptcy case while there was a prohibition on collections and other activity.  Hopefully, they used that time to get their financial circumstances in better shape, and work on budgeting.

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