Bankruptcy is not meant to punish. The heart of the Bankruptcy Code is to provide the honest debtor a "fresh start." There are exemptions which allow you to keep most, if not all of your personal belongings. For example, in California, the debtor can protect his or her pension, IRA and 401(k). He or she can choose either the homestead exemption to protect equity in a home, or the wildcard exemption that permits the debtor to keep well over $20,000 in any personal belongings, in addition to household goods such as furniture and clothing. Indeed, more than 90% of the cases are "no asset" cases, meaning the debtor keeps everything because the exemptions protect all assets.
I feel ashamed
If you are avoiding filing for bankruptcy because you feel ashamed, consider what it is you feel ashamed about. It is poor money management? Is it your spending habits? Or is it simply having found yourself in a situation that you could not get out of? Do not punish yourself by living with the debt until you die. Look ahead, learn from your mistakes, and move on. Moreover, letting your debt grow or permitting a lawsuit with a judgment to linger only deepens the sense of shame.
I have a moral obligation to pay back my debt
Filing for bankruptcy has nothing to do with your moral obligations. It simply frees you from your legal obligation to pay back the debt. It also frees you from creditors chasing after you and calling you non-stop. If you feel strongly enough about it, you may choose to pay back any or all of your creditors after bankruptcy. But you will be able to pay it back on your terms, not the 30% default rate.
The concept of bankruptcy finds its roots deep in our civilization. For example, it is found in the bible: "At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).
It's also found in our constitution.
But AMEX, Discover, Bank of America, etc. have been so good to me
AMEX, Discover, Bank of America, and the like are corporations whose only purpose is to generate profit. They do not care if you drain your 401(k), sell your car, your home, or the clothes off your back to pay them. They do not care if you work until you are 81 years old and can never retire because you gave all of your money to them. Their sole purpose is to generate profit and pay their shareholders. They will guilt you, threaten you, or take whatever measure is necessary to collect your debt. This is the reason why there are consumer protection laws to shield you against certain collections practices.
Banks are well aware of the possibility that every time they extend credit to a customer, s/he may file for bankruptcy. They calculate this into the cost of business. Credit card companies make money by extending credit because they make money by charging the merchants.
I'll never be able to buy a car or a home/ It will ruin my credit
Clients often think they will walk around with a scarlet letter or suffer banishment because they filed bankruptcy. This is another myth perpetuated by the credit industry. It is simply not true that you'll never be able to buy a car or a home or get credit again. Yes, the bankruptcy will be reported on your credit report for ten years. However, the impact of bankruptcy exponentially reduces over the first few years. Will you be able to get a mortgage a month after filing for bankruptcy? Unlikely. The key after bankruptcy is to use your credit wisely and not overextend yourself again. Remember, you can't file Chapter 7 bankruptcy again for 8 years.
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