The strange negative stigma in bankruptcy cases

Unfortunately, despite the fact that it is simply a legal financial option, bankruptcy often carries a negative cultural stigma. This is a curious development, as bankruptcy does not hurt the peers of a person filing in any sense, but the stigma remains.

Researchers have found that this sigma is often completely unnecessary and provides yet another unneeded burden for someone who is already going through one of the toughest financial times of his or her life. There is no social benefit and, often, no financial benefit.

Some of the reasoning here may be that people don’t understand how and why bankruptcy happens. They assume, for instance, that it is due simply to poor choices made by an irresponsible person. The reality, though, is that these financial difficulties are often completely out of the person’s hands. It’s not as if this stigma alone will influence him or her to spend money in a responsible fashion and avoid bankruptcy.

For instance, imagine that a downturn in the economy really hits a particular business. The company has to lay off numerous employees who were doing an excellent job simply because the income to pay them no longer exists. At the same time, one of these workers has an unexpected health crisis that drains his or her savings.

Clearly, this person has not been irresponsible, but debt still piles up in a hurry due to things that the person can’t prevent or predict. In this case, the stigma puts negative pressure on that person for no reason, and he or she may even refuse to file when it’s clearly the best financial option. It is important for all people to understand how bankruptcy really works and when it should be used.

Source: Emory University, “Bankruptcy Stigma and Vulnerability: Questioning Autonomy and Structuring Resilience,” Yvana L.B.H. Mols, accessed Feb. 27, 2018