Do Only Bad People File Bankruptcy?

No. There is a misconception out there (no doubt promulgated by creditors) that only bad people file bankruptcy. This couldn't be further from the truth. All kinds of people file bankruptcy. For example, did you know Sam Walton (founder of wal-mart) filed bankruptcy? Henry Ford had to file, so did Jerry Lewis, Judy Garland, Kim Basinger, and even Larry King. The list goes on and on.

In Colorado 18,000 people filed for bankruptcy in 2008. In 2009, as of the end of August 18,000 had already filed. Here's the deal, a modern bankruptcy system is absolutely essential to the survival of any modern economy. I realize it sounds counter-intuitive, but what the bankruptcy code does is create certainty and by its design creates an organized system of handling assets and liabilities in the event of a default. Creditors, especially the big institutional ones, understand very well the risks of bankruptcy. They know the procedures, the systems, the courts, and what will happen when a bankruptcy is filed, thus creating stability and data to plug into their risk modeling.

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Think about it, would the taking of risk and creation of wealth (the basis of capitalism) really be encouraged if a debtor who couldn't pay became a slave or indentured servant like what happened in the ancient world? Would people stick their neck out if they thought they would be excommunicated and not go to heaven like the middle ages help to excommunicated? Or even worse, if Debtor's prisons still existed would the average person take that sort of risk? The answer is no. And that is why bankruptcy exists, to further the designs of capitalism and create a structure for managing risk and lending of money.

Now with that being said, any good creditor does its best to minimize its losses, thus the reason for the myth that you are a bad person if you file for bankruptcy. But consider this, even the bible is more forgiving than the bankruptcy code. The bible releases debts every 7 years, the bankruptcy code every 8. Besides, the way the bankruptcy code is written, you can pay back whomever you want to after you file bankruptcy on a volunteer basis. People do this all the time. The problem is that the creditors aren't willing to work with debtors and utilize abusive and harassing collection tactics just to get paid. I once had a case in which my client was sued for his deceased step-grandfathers credit card. When he proved it wasn't him, they kept suing him! Of course once we got involved everything was fixed and they eventually paid my client damages, but this sort of thing happens all the time and is representative of the collection industry. When you file bankruptcy they just move on to the next person. It's not like it used to be, you are now just a number in some computer somewhere.

So who files for bankruptcy? All kinds of people from all kinds of industries. Real-estate is getting slammed nowadays. Brokers, builders, mortgage guys, anyone associated with real-estate is hurting. But even beyond that, lawyers file bankruptcy. Doctors file bankruptcy. Accountants file bankruptcy. Business file bankruptcy. Executives file bankruptcy. Pastors and clergy file bankruptcy. It is estimated that in Colorado 1-8 people has filed for bankruptcy. Remember that next time you are at a party.

So next time you are feeling guilty or a think you are a bad person because you are considering bankruptcy, remember, bankruptcy was designed to further the premise of capitalism, you are not alone, the credit industry doesn't care, and most importantly you can pay it back if you decide to.

*Disclaimer: The information contained in this distribution is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Do not take legal action based on this content! Always contact a lawyer near you.

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