While some people mistakenly believe that bankruptcy represents a fairly easy way to retire a burdensome debt, many other people feel ashamed by filing a petition and may delay the process to the detriment of their financial situation. For those who are considering bankruptcy, know that it's often the result of unforeseen or similarly trying circumstances. Half have experienced a serious health problem and two out of three have lost a job, according to The Fragile Middle Class: Americans in Debt and reported by Bankruptcy Action. Moreover, it can happen to almost anybody. The same source claims that fewer than nine percent have not suffered some type of job loss, medical event, or divorce.
Whether these scenarios aptly describe your situation or not, there's no need to feel ashamed. Between credit counseling, collecting and disclosing your financial information, following through with the petition, and paying court costs and related fees, bankruptcy is no cake walk. And while you may already be a responsible person with a detailed plan to maintain a healthy financial situation moving forward, you can think of demonstrating these facts to the court as proof that no shame is warranted.
While bankruptcy is often the option of last resort for consumer debt, making the right preparations may take several months of planning and can lead to better outcomes. From knowing and meeting the eligibility requirements to impressing the judge and/or trustee with a detailed report from an approved credit counseling agency, demonstrating a seriousness of purpose often goes a long way in bankruptcy proceedings.
Part of this accountability and seriousness of purpose does go back to the source of the consumer debt. Explaining an understandable lapse in health insurance coverage in combination with an unexpected medical ailment is a lot different than explaining the purchase of a deluxe hot tub on a credit card with a high interest rate. Just because you have a good story to tell the judge is by no means a guarantee, especially without a responsible plan moving forward.
Likewise, you don't necessarily need a heart-wrenching story to be granted some measure of debt relief. A hot tub may have seemed like a more reasonable purchase before the primary income earner lost his or her job. To this point, you want to show that you understand your financial circumstances and how to avoid racking up excessive debt in the future.
Rules of the Road
It's easy to think that there's a different set of rules that apply only in bankruptcy and, to some extent, this is true. But in arguably more fundamental ways, there are credit and debt truisms that are still worth following. Take risk management, for example. While the bankruptcy court is challenged with weighing the best interests and rightful claims of both creditors and debtors, the court also has a vested interested in helping consumers stay out of burdensome debt in the future. Again, demonstrating that you're a low risk to re-enter bankruptcy is one of the best ways of greasing the wheels of your bankruptcy filing.