Have you ever wondered why there is such a stigma associated with bankruptcy? After all, companies file bankruptcy all the time and reorganize themselves to live another day. The number of companies that have filed bankruptcy only to rise out of the ashes of debt are way too numerous to even mention.
If you can google you can see the number of them that have filed bankruptcy- including banks themselves! And yet, don’t you find it odd that consumer bankruptcy carries such a stigma associated with it? You don’t hear that Kmart files bankruptcy and think wow- Kmart must be embarrassed right? So then why is there such a stigma if you file bankruptcy?
1) CREDITORS WANT YOU TO FEEL A SENSE OF SHAME SO YOU DON’T FILE BANKRUPTCY!
It really is true. Creditors enjoy the fact that consumer debtors are embarrassed and anxious about filing bankruptcy. Why? Because if you feel that way, maybe there is a chance you will not file bankruptcy and they still will get paid! Or, maybe you will delay filing long enough so that the creditors get you to pay them as much as possible before you file! It’s true!
Why else do you think creditors and their lobbyists were able to convince a Republican Congress and a Republican President to change the bankruptcy code in 2005 to now require each debtor to take an online credit counseling course and a post filing debt management class?
If you think these course were meant to give consumers struggling with debt valuable financial tips, I have a bridge to sell you. No, they were designed to delay the inevitable bankruptcy filing so the creditor could take one or more swipes at you and try to make a few more scheckles off you before you file bankruptcy.
Think about it, if a creditor is able to get $200.00 more from you as a result of these meaningless requirements, now multiply $200.00 by millions of debtors and you all of sudden have a lot of money- and therefore, the creditors got what they wanted. They didn’t want to and Constitutionally probably cannot prevent bankruptcy filings, but they can delay them, and thereby make more money. Cynical right? But, I believe this to be true.
I believe the stigma about bankruptcy is “schooled” (make us think the same) in consumers so that they believe a bankruptcy filing is a defeat, that it’s wrong, and that you should not do it. And the funny thing is you hear people repeating this crap all the time! And yet- the creditors themselves and the big corporations file bankruptcy with impunity! If it’s good enough for the corporations bottom line, why isn’t it good enough for your family’s bottom line!?
2) CREDITORS DON’T WANT YOU TO KNOW THAT FILING BANKRUPTCY IMPROVES YOU CREDIT!
Is this some kind of a joke Wes? No, this is no joke! For most of our Minnesota guests filing bankruptcy and obtaining a discharge instantly improves your credit score. Why? Because you no longer have any debt.
Take Nola and Tim for example. They own a home with a mortgage of $204,439.00. The house is worth $189,900.00. They are still a little upside down from the great recession. They have $58,922.00 in credit card debt and Nola just lost her job. They have fallen behind on most of the credit card debt although they still make minimum payments on the smaller ones. Their biggest credit card debt, Discover, has just commenced a lawsuit against them for the amount owed. They have commenced suit using a law firm in Plymouth, Minnesota.
When they received the lawsuit they went on line and googled Minnesota bankruptcy law firms. They called Kain & Scott and set up an appointment. They had never been in this position before. When they were both employed, they were not rich, but the bills got paid on time and they had a little left over for some fun.
Things started taking a turn for the worse when Nola’s overtime hours went away two years ago.. She had been getting overtime for years and years, and I mean really good overtime. When the overtime hours went away, their credit card use increased to cover the bills. They though the elimination of overtime was temporary but they were very wrong. It turns out the company was in dire straights too and they sold to another company who closed Nola’s division altogether.
It was with an enormous amount of courage that they reached out to Kain & Scott. With their payments already being delinquent, and the lawsuit having been commenced, the bank was not willing to give them a consolidation loan. Their credit score was high but started to suffer when the payments began to be missed and the lawsuit commenced.
If they filed a chapter 7 bankruptcy, and obtained a discharge, their liability for all of this debt would be eliminated! Now, let’s be clear, if they want to keep their house- which they did, they still have to make their house payments, but the unsecured debt would be wiped out, tax free, forever!
Nola and Tim did file chapter 7 bankruptcy and do you know what happened to their credit score? It went up! Why? Because they had no liability on debt whatsoever. The bankruptcy filing is on their credit report for 10 years but their actual credit score went up. These are things banks and creditors do not tell you.
3) THE DEBT GOES AWAY TAX FREE!
Do you think banks and creditors want you to know that debt forgiven in a Title 11 bankruptcy, which chapter 7 and chapter 13 bankruptcy falls under, is not taxable income to you? Of course they do not. They would prefer you still live in a world of endless anxiety and not file bankruptcy and have you wages garnished and accounts levied forever! Sound good?
Even if someone were to avoid filing bankruptcy, the tax consequences alone can be reason enough to file bankruptcy instead of settling the debt.
First, settling a debt with a creditor for less than what you owe them looks really shitty on your credit report. You paid them less than you owe them. Second, and more importantly, the debt that was forgiven is taxable income to you. You say well if I pay 30k to settle 100k in credit card debt that is better than paying a 100k in credit card debt.
That is true. However, if you pay 30k to settle 100k in credit card debt your credit report will report this and your credit score will suffer dramatically. Plus, you have to pay taxes on 70k in forgiven debt. I am not an accountant, but I would guess you will owe 30k or more in taxes too.
So your credit score and credit report sucks plus you get kicked in the groin with paying taxes on debt forgiven? No deal. The better road is to file bankruptcy and eliminate the debt tax free. The added benefit is your credit report will show no negative creditor information (besides the bankruptcy) and that will make it easier to get credit right after discharge.
Contact the MN Bankruptcy Lawyers at one of Kain & Scott's 8 professional and convenient MN locations today for a free, no-obligation consultation and let us help you get started on the road to debt freedom!
