What Are Some Of The Stigmas And Misconceptions Surrounding Bankruptcy And Those Who File For Bankruptcy?
Many people feel that filing for bankruptcy is a moral failing on their part. They feel that because they have incurred the debt, they have an obligation to pay it. They feel like they failed if they do not pay, and instead file for bankruptcy. However, bankruptcy can be a good thing.
In an ideal world, we would pay all our debts. In fact, in an ideal world, there wouldn’t be any debt. However, we do not live in an ideal world, and life is messy. We do not always know what will happen in future to disrupt financial security. The economy can take a turn for the worse. A business might fail due to a break in the supply chain or a pandemic. Filing bankruptcy is not necessarily an indication of anything other than you have had a reversal of fortune, and can no longer pay your debts as they come due.
Moreover, filing for bankruptcy does not necessarily mean that you won’t pay your debts. Perhaps you can pay the debts if you just have more time to do so. Chapter 11 allows a business to do that through a plan; and Chapters 11 and 13 allow individuals to do it too.
Perhaps the biggest stigma arises from the misconception that someone who files for bankruptcy does so shortly after running up a huge amount of debt. While that may occasionally happen, it is not the norm. Most debtors find themselves in over their head with debt due to misfortune.
Bankruptcy allows people to take risks and start businesses. Since many businesses fail within a year or two, bankruptcy lets business people get out of debt so they can try again. While bankruptcy is not ideal, it is a safety net for entrepreneurs take risk. Most businesses file under Chapter 11, under which creditors are paid — sometimes in full.
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