Personal Bankruptcy Is Losing Its Stigma

Before the Great Recession, many people attached a great stigma to declaring bankruptcy. This perception often caused many eligible individuals to shy away from seeking relief from their debts out of fear of being branded a "failure."

However, in the aftermath of the recession, bankruptcy attorneys are observing a drastic change in public opinion. Whereas bankruptcy was once viewed - some would say unjustifiably - as the result of an individual's own financial irresponsibility, it is now being seen as the product of creditors' unfair practices.

Increasingly, bankruptcy filers are the victims of economic circumstance. They haven't behaved irresponsibly, they have simply fallen prey to the turbulent economic times - they lost jobs, got sick or had problematic mortgages and couldn't keep up with the bills. When lenders unexpectedly raised interest rates or refused to consider loan modifications, borrowers were left with no choice but to declare bankruptcy.

Bankruptcy attorneys also report that new clients are showing up in their offices armed with information and ready to file. Since there's less stigma attached to bankruptcy, the lawyers surmise that potential filers are much more willing to discuss their financial troubles with friends and family.

However, this change in public opinion doesn't necessarily mean that bankruptcy numbers are rising. Although bankruptcy filings skyrocketed at the beginning of the recession, as of September, 2011 they were down 17 percent from the year before.

Bankruptcies are Hard, but Necessary

The mere fact that the stigma surrounding bankruptcy is fading doesn't mean that filing isn't a hard thing to do. No one comes to the decision to pursue bankruptcy easily. However, once people begin to dispel the myths about bankruptcy, they frequently realize that the benefits of bankruptcy outweigh the repercussions of filing.

Source: The Washington Times, "Bankruptcy and Divorce no Longer Scarlet Letters," Myra Fleischer, Oct. 12, 2011.