Managing Debt

Does Bankruptcy Still Carry a Stigma?

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For Marilyn Kleinberg, the decision to file for bankruptcy was difficult, but dealing with what the bankruptcy said about her was even more trying.

“It was a mental thing for me,” Kleinberg said. “I could not file bankruptcy. It meant that I had failed. But I came to the point that I had no other option.”

After leaving a job with benefits and a salary to start a travel agency business in 2006, Kleinberg soon found herself spending way more than she was taking in.

“There was no cash flow, so I started to pay my loans off with my own money and within two years I had nothing left.”

Kleinberg filed for both personal and business bankruptcy in 2009 after finding herself tapped out of cash and with more than $100,000 in business and personal credit card debt. That was in addition to a home equity line of credit that had maxed out at $100,000 and a Small Business Administration loan of $150,000 that she couldn’t pay.

When she went to meet with a bankruptcy attorney to begin the filing process, she broke down in his office.

“I met with a lawyer and he basically handed me a box of tissues and I just cried,” she said. “He said that was pretty common.”

The Truth Hurts

Bankruptcy is one of the most difficult financial events a person can experience, affecting your financial and emotional health. A bankruptcy can stay on your credit report for up to 10 years after the filing date, which means that the impact of a bankruptcy can stay with you much longer than a missed credit card payment or even a foreclosure. But does a bankruptcy also carry a social stigma that will follow you around?

Ric Morgan, an author and entrepreneur from Tennessee, filed for bankruptcy in March 2012 after racking up more than $350,000 in medical bills. He said he didn’t experience any type of negative stigma when it came to filing, but mostly because people understood high medical bills.

“When I told people that the medical expenses had become too much, they all said ‘Ahhhh.’ I think everyone fears it.”

Morgan said he did initially feel a sense of guilt at his inability to pay all of the bills.

“I see credit as a trust. They trust you to pay the bills,” he said. “For me, the feeling was that I was violating a trust. But then you realize you are up against something that’s not your fault.”

A Way Out

After leaving the hospital, Morgan had more than $10,000 of credit card debt from co-pays alone. When he contacted a lawyer to begin the filing process, Morgan’s attorney told him that the only cases he was willing to take on were medical debt cases because legislation had made it so difficult to allow people who had overspent to qualify for the bankruptcy protections.

After completing the bankruptcy process, Kleinberg said she only was able to save her car, but emerged optimistic.

“I chose not to dwell on the negative.”

Currently, she is the executive managing director of the Southern New Jersey Chapter of eWomenNetwork, an organization that helps women network and make business connections. She blogs about her bankruptcy story and says she has found that being open about the process has helped others share their stories with her.

“I refuse to allow that to brand me,” she said.

Image: Fried Dough, via Flickr

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  • http://www.drescherlaw.com Ronald Drescher

    I don’t believe there is a stigma to filing bankruptcy, especially after the recent economic meltdown. I uploaded a YouTube video on this very topic:

    http://youtu.be/mizHRuBggrk

    Thanks to the information available online, there are more resources than ever, like this website, to allow financially troubled families the make the right decisions for themselves and recover more strongly than ever before.

  • Sammy C. Smith

    If you have filed bankruptcy in the last 6 months and are presently renting, but never had a house foreclosed on, shere do you go to get a new home loan?

    • Gerri Detweiler

      Sammy –

      Most mortgage lenders will want you to wait for a two-year period after you have filed bankruptcy before considering your application for a home loan. In the meantime, you should be trying to rebuild your credit and save up for a down payment and closing costs.

      Another option may be a lease-to-buy agreement where part of your rent goes toward a down payment on your house. Just be careful before signing an agreement like that. If you decide not to buy that home, you may forfeit money you could have been saving toward another home. (Depends on the contract and the cost to lease, of course.)

      You can also try talking with a mortgage broker to see what programs may be available to you sooner. Again, be careful not to get stuck in an expensive loan.

  • Michele

    I filed bankruptcy a year ago. Someone told me the best way to establish my credit again was to get a small charge card is that true. If not how can a person get their credit reestablished.

    • http://www.credit.com Barry Paperno

      Hi Michele, Thanks for writing. Yes, getting a credit or charge card that’s reported monthly to the credit bureaus is a good way to begin to re-establish your credit. Being only a year out of bankruptcy will no doubt require a secured card, in which you’ll be required to put down a cash deposit as collateral. These cards can do as much to rebuild your credit score as unsecured cards, so don’t be put off by the “secured” part. Then after you’ve had the secured card long enough to see some improvement in your credit score, typically about 6 months, you may be able to obtain a department store card with a low credit limit. With either card, it’s neither necessary nor advisable to carry a balance from month to month — only that you use regularly and pay on time. Also, once you’ve had the secured card for some time, it may have the option of converting to an unsecured card. To learn more about secured cards, go to http://www.credit.com/products/credit_cards/secure.jsp

  • Debbie Stewart

    After a landslide in front of our house and medical bills and my husband and I both being layed-off for more than two years, we had to file bankrupcy The landslide took all our savings as we had to have our house pinned in addition to having a contractor and geologists come in and fix the land slide. And then the medical bills and credit cards, it was all we could do to eat. I do not care what people think as we did what we had to do to keep our dream home we built ourselves. After 32 years of marraige, we are starting over.

    • http://www.credit.com Barry Paperno

      Hi Debbie, I hope by filing for bankruptcy you’ve brought some peace and stability to your life following the combined tragedies of the landslide, medical bills and layoffs. The other benefit of bankruptcy in your situation is that by fully discharging your debts (assuming you’ve been able to do that) and starting over, your credit score too will begin to “start over” as all of your credit information going forward will (hopefully) be positive and your score will be back on the upswing. It’s still going to take a few years to regain a good score, but you should feel good about being on the right track and putting the past behind you. Good luck!

  • kathy andolino

    where do I begin? Several years ago( maybe 5), my husband and I started to file bankruptcy. Suddenly our lawyer died.. we then found out that he never filed our claim, or others as well. we paid for his services but had nothing to show. now i am looking to get things in order again. I thought that maybe we could have fixed things ourselves, but it is just catching up with us agian. I stopped taking care of the bills be cause of depression and some other things. I left it up to my husband to do all the work. I am getting better at life now and want to take over the responsibility.. What do i do about the bills that where in the other lawyers files, i dont even remember who, and how much it was.. We still have our mortgage, car loans and student loans. we never got any new credit cards since that first file. help I dont know where to go from here..

    • jstenucci

      Remember there is no debtors prision – so get a copy of your credit report (get all three of them one from each credit reporting agency) – list all your debts from all the credit reports even if you think they are paid.

      Use that to file… get on with your life… I’ve claimed bankruptcy twice and it is the best thing I ever did!

  • Susan Colon

    I filed bankruptcy in 2008, my trustee passed away right before discharge delaying the process. My mom passed away leaving me a third of her estate. Shortly afterward, my bankruptcy was finally discharged. It has been a mess. The court will take my 1/3 of the estate to pay off the creditors who came forward. Will this clean up my credit record at all? I was able to pay cash for a foreclosure out right, so I own a home. But I still have no credit.

    • Melanie

      Susan, even if your discharge was not delayed, the inheritance you received from your mom’s estate would still have been an asset to your bankruptcy estate if it occured within 6 months of your filing for bankruptcy. The inheritance is something that was determined pre-petition, but actually received post-petition…within the 6-month timeline. Also, it is unlikely the Court took 1/3 of your estate (which was likely the amount you were unable to exempt), the newly appointed trustee for your bankruptcy is the one who generally would and possibly did. If you filed a Chapter 7 (which you did not indicate), the debts that were allowed to be discharged, were probably discharged. The trustee who received the 1/3 would distribute to your unsecured creditors a pro-rated sum based upon the claims they filed in your estate. Not all creditors file claims and if they were unsecured, non-priority claims, they were likely discharged. I would suggest you contact a bankruptcy attorney to be sure your case was fully administered. You will have to work to re-establish your credit. Paying cash for something does not increase your credit record. In fact, it leaves no credit record although you now have a beneficial asset. I don’t believe that credit cards are the answer – at least unsecured credit. Perhaps purchasing a vehicle on credit, if you can afford to? Anytime you apply for credit for the next 8 to 10 years, you may be asked to provide them with a copy of the Discharge of Debtor document provided. Best of luck to you.

  • http://Credit.com George

    I filed for bankruptcy almost 7 years ago. However, I got into a bad predictament once more. I have about 15k in credit card debt and medical bills. I already was sued by 2 of my credit card places. I am paying payments with both of them. However, I am going through a divorce right now and I only have one income and I cannot not afford to be paying more when I get sued again. Also I have my college loans of forbearance for awhile. I owe 124k in college loans. I only make close to 35k month. Can I file for bankruptcy anytime soon? Also I will not be able to afford 700.00 month in college loans. Is there anything out there that can help me since I understand federal student loans can”t be discharged in a bankruptcy. Your input would be much appreciated.

    • Melanie

      You earn $35,000 per month?? You did not say what chapter you filed. 7? 13?

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  • http://msnbc Kathy

    We are filing bankrupty and foreclosing on our home of 10 years because my husband has been laid off of work. Why do so many places that are rentals want this information and why do so many not rent to you once you have filed? We do have income still, as we are taking his retirement from his job due to his lay off.

  • http://msnbc Kathy

    We are filing bankrupty and foreclosing on our home of 10 years because my husband has been laid off of work. Why do so many places that are rentals want this information and why do so many not rent to you once you have filed? We do have income still, as we are taking his retirement from his job due to his lay off. We have never been late on our house payments until now—does that help us—and how do we prove it?

  • ErinHott

    I was considering bankruptcy due to a terrible divorce in which I was left with our house, cars, and all the credit card debt. I had the credit and I allowed him to be on as a user. Once we separated he charged exuberant amounts to my credit cards and let our home go into foreclosure. I finally recently got my home out of foreclosure, but the bills are piling up. Would I be able to keep my home and my vehicle? How does that work? Do they just exclude both of these loans from the bankruptcy?

  • mary

    We filed bancruptcy and was discharged 4 years ago. I got to keep the house and my car. I signed a reaffirmation agreement for the car but never recieved one for the mortgage. My mortgage was sold shortly after and nownow the new company will not give me access to their website to make payments or even see anything having to do with my mortgage. I have asked for statements to be sent and the are not doing tha along with not reporting any of my payments for 4 years. I dont have a reafirmation letter to send and i dont want to reopen my bankruptcy what can i do?

  • Catch-22

    The question should be “Does ANYTHING carry a stigma today”? Judging by the news… apparently not!

  • Evelyn

    I’m still waiting for the… “waiting to exhale feeling”. Everyone keeps saying you feel a weight lifted…well I feel like crap! We signed yesterday to start the process for bankruptcy (chapter 7 in FL) and I’ve never felt so unsure in my life.

  • Curious

    Is there a charge to file bankruptcy?

    • Curiousity Answer

      Yes, but every attorney is different. Also, you may or may not qualify for assistance through your local Neighborhood Legal Services to pay your lawyer’s fees. The lawyer charges you for the work of completing the necessary paperwork, filing said paperwork with the court, and research to ensure you don’t forget to declare assets OR debts that you have when applying.

  • Kassie

    I am considering filing a bankruptcy but the attorney’s fees are outrageous. I have noticed that a couple of attorneys in my area are offering a fee of $300 to file your paperwork with the court and then you have the option of retaining the attorney to continue on through the bankruptcy proceedings (for another $1200) or you can go through the rest of the process alone with no further attorney’s fees. My question is, I am filing just a straight bankruptcy —nothing but credit card debt, no assets— do I really need an attorney to stand beside me for 5 minutes in front of the trustee? It would be so much easier if I did not have to worry about coming up with the extra $1200.

    • Mommitude

      My personal opinion is that despite the cost, it was totally worth it. The first time which was more than two decades ago I was a young college student with a baby and just knowing someone who knew what to do helped. Years later, thanks to a domino effect we declared bankrupcy but I don’t think it was anything close to a “straight” bankrupcy. On top of various credit cards, we had lots of medical bills to include too. Our house was in a HUGE upside down mortgage so we decided to give it up / let it go back to the bank, I wanted to keep my car which I still had a loan on, and I have student loans which do not qualify to be written off in bankrupcy. All the hassle of knowing anytime I get stuff in the mail (which I still do almost two years later) on the house, I can hand it to my lawyer and say “here, help me with this please” was WORTH the extra money. Plus knowing he would argue if any of the lenders came to claim property was worth it. We walked away from everything that was worth anything except the car, and well – there was no getting a loan for a new one so we just reaffirmed the debt. It did NOT help our newly terrible credit but it did help with making sure we didn’t accrue more as a result of me having a job! GOOD LUCK! :)

  • http://msn Mari

    Bankruptcy should not carry a stigma. If a person needs to file they should do it. I filed in 2010 and realized I had no choice. I did learn a lot from the experience and that is to watch my spending and pay bills on time. Since then I traded my expensive car in for a small new car and have 2 credit cards which are always paid in full each month..I am amazed at the peace of mind I have now that everything gets paid. on time.
    I do not have as much money as I once had but am content with what I do have.
    The house and car always get paid first every month.Insurances are automatically deducted. I managed to buy new furnishings for the house on layaway and I often buy used things that are good.
    It felt bad to have to file bankruptcy but I sure have a more mature way of dealing with finances. The credit cards pay for prescriptions and needed items and if I do not need something I don’t buy it. Temptation is everywhere . I allow myself a hobby and that is my plant collection. My ”plant friends” and I exchange cuttings and save money that way. I have joy out of life knowing that I am not spending beyond what I can afford.

  • Steve Campbell

    My Wife andi filed ch 13 due to a business in whicj my brother and myslef own 1/2 each. Afetr several back forth on a pymeny plan I diecided not to come back with a payment do it was dismissed (by us) What are the consequenses for doing that ?? SOes it still stay on you r credit report for 10 years. We are currenlty trying to rebuild our credit and currently renting, Can we buy a home anytime soon /?

  • http://ahsaan1@comcast.net Adrianwarren

    I’m am coming to the decision that bankruptcy is my only option after credit counseling. How do I located a reputable bankruptcy attorney in southeast Michigan?

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  • eme36CO

    Where do I go to get actual credit counseling? Someone to look at my situation and give me honest advice on whether bankruptcy, consolidation or settlement is the right option for me? It seems that places touting “credit counseling” are only trying to sell you their debt management plans and bankruptcy attorneys are obviously trying to sell you their services…

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  • Tomas

    Greetings! This is my first visit to your blog! We are a team of volunteers and
    starting a new initiative in a community in the same niche.
    Your blog provided us valuable information to work on. You have done a extraordinary job!

  • http://www.credit.com Jenny Barnes

    Hey, My husband died suddenly in 2010. I was left with a mortgage payment car note,student loans, and mounting medical bill. I have a chronic illness and I haven’t been able to work consistently. I am on the debt treadmill. I have used monies he left to pay all these bills and now I am tapped out. I been trying to avoid the inevitable. I now have to consider disability. Could you give me advice on bankruptcy! My mortgage is one of those that has ballooned!

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