Should you fear bankruptcy?

Lawyers are trained to argue two sides of any position.  So the answer is “yes, bankruptcy should be feared,” and “no bankruptcy should not be feared.”


Clients come to law firms with a wide spectrum of attitudes towards even the discussion of bankruptcy.  Some pronounce without hesitation: “I need to file a chapter 13 bankruptcy,” or “I need to file a bankruptcy to get rid of my mortgage.”  Others come after having explored every other option and want to know whether bankruptcy is their only option and if so, what the process looks like.  Somewhat counter-intuitively, the first person has more to fear than the second–and that is because bankruptcy, both consumer and corporate, can often be counter-intuitive and always has serious consequences, good and bad.


Statutorily mandated by our U.S. Congress, bankruptcy can be an excellent opportunity to re-balance power between a debtor (someone who owes something to someone else) and a creditor (someone who is owed something from a someone else).  It is not, as some believe, something that should be taken lightly or used as a source of trickery or gimmick.  Because it is such a powerful tool, Congress ensured serious ramifications associated with filing in bad faith and ultimately ensured that the filing of a bankruptcy petition would result in cost to the filer, financially, time-wise and, for some, emotionally.


Two areas of common pitfall are (1) a debtor (or creditor, for that matter) attempting to use the Bankruptcy Code in a dishonest way or for disingenuous reasons; and (2) a debtor attempting to file alone (pro se) or with the help of a non-attorney petition preparer.


These are two primary areas where bankruptcy should be feared.


On the other hand, when a debtor selects a competent and experienced attorney for legal advice, bankruptcy should not be feared because adequate representation is the most effective way to use the bankruptcy system to strengthen the filer’s financial position.  Like all good attorneys, we file bankruptcy cases that will improve a client’s financial position and in fact sometimes advise against filing a bankruptcy or at least to consider other options, first.


With solid representation, a client’s informed acceptance of the unknown and willingness to partner with their attorney, bankruptcy should not be feared.