Bankruptcy isn’t so Bad for Your Creditors, or the Economy
Many people feel bad, or guilty about filing for bankruptcy. They may feel like they are cheating the system, or cheating their creditors. However, bankruptcy is actually a fair process, designed to help both the debtor and the creditor. And while they may not admit it, directly or indirectly, bankruptcy can actually help your creditors.
An Unfair System
Have you ever owed significant debt on a credit card? You make minimum payments, only to find that your balance is not going down. That relatively moderate debt now looks like it will take 10, 15 or 20 years to pay off. In some cases, you may find that for a single missed payment, your 0-5% interest rate has now ballooned to 30-35%, and it’s all legal.
The bottom line is that the law allows creditors to charge almost what they want and ensnare people in endless debt cycles that they cannot get out of. But bankruptcy is the great equalizer. The threat of bankruptcy is what forces creditors to negotiate, or provide reduced payments or settlements.
Fighting Back Against the System
Bankruptcy is the consumer’s way of “fighting back”; the same way creditors can jack interest rates up to astronomical levels, the consumer can say no, refuse to pay, and obtain a bankruptcy discharge.
Remember that your creditors did not feel guilty about raising your interest rate, or for charging you a huge amount for a medical emergency you didn’t want and couldn’t control. In turn, you should not feel guilty about filing for bankruptcy.
Bankruptcy also helps the creditors. Can you imagine if there were no bankruptcy? Everyone who gets themselves into debt would no longer be able to take out any more credit, and in turn, could not buy things—furniture, electronics, car repairs, or anything else—with that credit. A large part of the economy and businesses would stall.
Certainly, we are not suggesting that after bankruptcy you should run out and charge up your credit cards again. But the extra disposable income you will have after you file for bankruptcy (your “fresh start”) can now go to buy household goods, food, meals, a vehicle, or other life needs and amenities. That is money you, the consumer, can now pump into the economy that you would not have been able to if not for bankruptcy.
You also are a candidate to take out new credit, hopefully in a responsible way. Whereas before you were “maxed out,” unable to obtain additional credit, you now can take out credit, and, unburdened with significant debt, you now have the income needed to pay back the credit that you use.
Compared to your position pre-bankruptcy, you are now, after bankruptcy, a benefit to creditors, and to the economy.