Consequences Are Unchanged Despite Bankruptcy's Fading Stigma
NEW YORK ( MainStreet) More than 13.5 million individuals and businesses filed bankruptcy in the last 10 years, according to Money Management International data while Detroit became the largest American city to go broke.And as it becomes increasingly a part of our national discourse, so too does it become less of a big deal.
"The stigma attached to declaring bankruptcy is fading," said David Leibowitz, a bankruptcy attorney in Chicago. "It has become common in all aspects of life so people see it is as a financial strategy. When it's O.K. for American Airlines, singer Toni Braxton, athlete Jose Canseco and even the city of Detroit to declare bankruptcy, ordinary people feel like it's acceptable for them."
But unbeknownst to most, the actual act of filing Chapter 7 bankruptcy is still time consuming and draining for most.
"My clients tell me that filing bankruptcy is emotionally draining, because they feel it's a disappointment and they beat themselves up over it," said Paul Kuzmickas, a bankruptcy lawyer in Cleveland.
The process involves hiring an attorney to handle the paperwork necessary to initiate the process then a checklist of documents must be submitted to the court. A hearing is typically set 30 to 45 days after declaration. If all goes as planned at the hearing and the individual completes mandatory credit counseling, the case sits for about five months to allow creditors to object to the discharge.
"Bankruptcy is a tool designed to help people pick themselves back up. No one should feel ashamed to exercise that right," said Jo Kerstetter, national spokesperson for MMI. "It exists to aid individuals who are attempting to regain solid financial footing."
Financial website NerdWallet.com and the Fred Hutchinson Cancer Research Center claim that rising health care costs are now the primary cause of bankruptcy."
"People commonly file for bankruptcy because they're in foreclosure and the mortgage company is not giving them the opportunity to stay in their home," Kuzmickas said. "Another reason would be that they were injured on the job and unemployment benefits just aren't enough to keep up with existing debt obligations."
Overall, filings have declined more than 16% in some West Coast and Mid-Western states, such as California, Nevada, Arizona, Alaska, Idaho, Montana, North Dakota, South Dakota and Iowa as well as the entire state of Florida while some parts of Southern states, such as Texas, Georgia, Louisiana, Mississippi, Alabama and Oklahoma have only experienced a decline of less than 8%.
"By filing for bankruptcy, these folks may be able to wipe away a second mortgage or find a way to restructure their finances to fit within a reduced budget," said Kuzmickas.