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Get this straight, quickly: There's no shame in honest bankruptcy

It's simply a business decision: cost vs. benefit

If you're considering filing for the very powerful protection offered by the U.S. Bankruptcy Code, the first thing to do is adopt a business frame of mind. Although some detractors and critics still make noises about the shame, stigma and "moral hazard" of bankruptcy, the simple truth is we have evolved from the archaic days of considering bankruptcy as a criminal proposition, to be dealt with via a debtor's prison.

It's the law: Better to allow a 'fresh start' rather than riding folks to ground

As stated by the U.S. Courts:
Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.

Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.

A few famous figures

In other words, whether to file for protection is a business decision--not one to be taken lightly, for sure--but a business decision, nonetheless. Consider only a few famous businessmen who filed for bankruptcy protection: Phineas T. Barnum (the great showman), Henry Ford (founder of Ford Motor Co.), Walt Disney (founder of Disney Entertainment) and Donald Trump (internationally famous tycoon). Each one made the cold calculations necessary to chart their courses, made the filing (with the help of trained, experienced attorneys, of course), and reorganized their finances. Each went on to new, lucrative successes.

Bankruptcy in today's post-recession climate

In fact, today bankruptcy probably carries less negative connotations than at any time in history. In "Why going broke is a fact of life in America," Liz Pulliam Weston writes:
Bankruptcy, once regarded as a shameful and humiliating failure, has become an everyday fact of life: More Americans filed for bankruptcy last year in the United States than in the entire decade of the 1960s.

And with millions of consumers struggling under record-breaking debt loads in an environment of rapidly rising interest rates, those numbers are likely to continue climbing in the months and years ahead.

What's behind the bankruptcy boom? In simplest terms, it stems from a growing tendency for consumers to spend more than they can afford to repay. But there are other, less obvious factors at work, including the shrinking availability of health insurance and the rise of computerized credit scoring. [Editor's note: Let's not forget unemployment.]

Ask a lender and you'll hear about a variety of causes, from irresponsibility on the part of consumers to increased advertising by bankruptcy attorneys. And, inevitably, lenders lamenting soaring default rates point to a lessening of the stigma surrounding bankruptcy as a key reason for its increase. Bankruptcy today is little more than a few months in purgatory, rather than the seven-year hell -- and lifelong disgrace -- it once was.

'Living Well with Bad Credit'

A very interesting take on living with bankruptcy--and life and hope after bankruptcy--was published last year in a Q&A format on WalletPop. Interviewed was business and personal finance writer Geoff Williams, co-author of a book entitled Living Well with Bad Credit. He responds to various aspects of revealing his bankruptcy to friends and family, including questions about how his career as a finance writer might be affected by the revelation. Among several penetrating insights, he shares the knowledge that even taking a vacation can involve hurdles that people with credit don't think about.


However, the "takeaway moment" in the interview, for me, is when he's asked about his own "lightbulb moment." To wit:
WalletPop: Having started out with good credit, and then living well with bad, what have been some of your "light bulb" moments?

Williams: You know, as crazy as it may sound, I think filing bankruptcy was one of the smartest financial decisions I've ever made. My light bulb moment was realizing that if I was going to have any sort of financial future, and that if I wanted to save for retirement and not someday become a ward of the state, and that if I had hope of putting money away for my daughters' college, I had to unshackle myself from my financial past.

It's a really good Q&A session, revelatory on several levels. I highly recommend reading the whole interview; the different angles Williams considers applies to so many individuals that he may just hit on one of your concerns, perhaps a facet you haven't been able to put a finger on, but were wondering about, without articulating it.

But even if you don't read it, keep in mind his "lightbulb moment": "I had to unshackle myself from my financial past."

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