Legal Ace
By RAFAEL “ACE” S. CLIMACO
For many people who are considering filing for bankruptcy, one important factor that may discourage them from actually filing is the social stigma that has historically been attached to bankruptcy. But the more fundamental question is: Why does this stigma exist in the first place? Secondly, should this stigma exist at all? And lastly, in practical terms, should this stigma prevent someone from actually filing for bankruptcy? In order to answer those questions, let us examine some context.
It is probably safe to say that everyone wants to be financially successful. Everyone wants to be able to stand on their own two feet, by paying for their own expenses with their own hard-earned money. But sometimes we bite off more than we can chew. And being able to admit that we can make mistakes is often very difficult to do. This is part of the reason why filing for bankruptcy has a stigma to it, but it does not adequately capture the whole picture.
Think about the daily usage of the word “bankrupt.” It is commonly used to describe something in a negative way. But not only is it commonly used to describe things in less than flattering terms, it also carries an extra layer of negative connotation to it, as if it refers to something especially bad. No one wants to be called “bankrupt” for any reason.
The Merriam-Webster Dictionary’s second definition of the word “bankrupt” describes this particular usage of the word. This second definition defines the word as “a person who is completely lacking in a particular desirable quality or attribute.”
But the first definition has a much more legalistic tinge to it, which defines bankrupt first as: “(a) a person who has done any of the acts that by law entitle creditors to have his or her estate administered for their benefit; or (b): a person judicially declared subject to having his or her estate administered under the bankrupt laws for the benefit of creditors.” As a lawyer, it is this first definition I am most concerned with when trying to help my clients.
Turning from the definition of the word itself, let us now examine how bankruptcy fits within the larger society. The American economy is largely based on consumer spending. According to the May 27, 2010, report from the U.S. Department of Commerce, personal consumption accounted for 71% of the gross domestic product (GDP) during the first quarter of this year. Since 2008, personal consumption has consistently hovered around this amount, ranging from 69.8% to 71.1% of GDP. These numbers show the importance of consumer spending in the national economy.
Also, consider that a Chapter 7 bankruptcy filing can be completed in about three months, which is a short period of time. With the importance of consumer spending in our economy, it is no surprise that the bankruptcy system is set up in such a way that efficiently discharges a person’s debt in a relatively short amount of time. In fact, many people receive credit card applications in the mail not too long after completing bankruptcy (and for most people, it is probably a good idea to throw them away).
Since the housing crisis, the number of home foreclosures has increased dramatically. The economy has been in a recession; many people have lost their jobs. As a result, an unprecedented amount of people have filed for bankruptcy. Many readers may personally know someone who has recently filed for bankruptcy.
Given this backdrop, let us now return to our two original questions. Why does the social stigma surrounding bankruptcy exist in the first place? Should it exist at all?
With the foregoing, I have provided some context in which to consider whether the social stigma of bankruptcy is warranted or not. And given the importance of consumer spending in our economy, the efficiency of the bankruptcy legal system, and the increased number of people who have filed for bankruptcy, the social stigma surrounding bankruptcy has probably mostly dissipated.
Turning to our third original question: Is the social stigma preventing you from filing bankruptcy? That is a question only you can answer. Some people are very concerned about what other people think, and some are not.
But as a lawyer, I am of the opinion that filing for bankruptcy should be viewed as a financial and practical issue. It is not an exercise in psychology. It is a decision that should be based on what is in your best interest in very practical and real terms. If you are seriously considering filing for bankruptcy, do so because you believe that it is in your best interest after weighing all pros and cons. Speaking with a bankruptcy professional may help.
(Atty. Rafael “Ace” S. Climaco is admitted to practice law in the State of California, the U.S. District Court of Northern California, and the Ninth Circuit Court of Appeals. A former president of the Filipino Bar Association of Northern California, he received his B.A. from UCLA and his Juris Doctor from the Univ. of San Francisco)
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