NEW YORK (MainStreet) – Abraham Lincoln may have been our greatest president, but he’s also one of the most prominent Americans to declare bankruptcy, too.
If Honest Abe were around today, he might sagely nod his head over some of the myths associated with bankruptcy and be the first to explain why the process may not be as harrowing as some people think.
The bad news is that bankruptcy is as hot as ever, even as economists say the U.S, economy is finally emerging from recession. The numbers are getting a bit better, as bankruptcy data compiled by the American Bankruptcy Institute show that consumer bankruptcies fell 22% from December 2010 through January 2011, the lowest number since 2009, the ABI said.
“The decline in consumer filings in January represents a promising start to 2011 after years of expanding consumer debt and financial distress," notes ABI executive director Samuel J. Gerdano. "Still, we anticipate that there will be nearly 1.6 million consumer bankruptcy filings by year end, 2011."
If you find yourself in a financial jam, big enough that bankruptcy might be a real option for you, don’t fall victim to the following myths and inaccuracies associated with major debt scenarios:
Bankruptcy court can actually be your ally. Having to appear in court to face your grim financial situation is probably the last move you want to make, but bankruptcy court can help you handle some important tasks, like stopping creditor phone calls and threatening letters, halting lawsuits, freezing foreclosures, or preventing your car from being repossessed. Treat the courts as a positive first step to stemming the financial tidal wave you’re facing.
I’ll be a pariah in my circle of friends. You’re not the only American to file for bankruptcy. In fact, it’s a pretty large club: The ABI says that more than two million Americans have filed for bankruptcy since 2008. And while bankruptcy filings are pubic records, how many neighbors and friends of yours study the public records? The fact is very few people will even know – or likely care – that you’re in bankruptcy (they likely have their own problems).
I’m going to the poor house. Actually, you’re not. Yes, bankruptcy courts may arrange to sell some of your assets, but it’s more likely that you’ll be given time to get your financial act together, and getting on a payment plan to satisfy creditors is one of the most common forms of bankruptcy actions. It depends on the state you live in, but in many cases you’re allowed to keep your home and your car when you declare bankruptcy.
My credit is shot. Yes, your credit rating will take a hit in bankruptcy, but it won’t last forever. Once you’ve completed bankruptcy proceedings, you come out of the ordeal with a clean financial slate, good, solid financial counseling, and no remaining unsecured debt. Also, banks and credit card issuers do provide credit to bankruptcy survivors, primarily in the form of secured credit cards. Look at such cards as a good chance of redeeming your good financial name.
Nobody is advocating bankruptcy as one of the finer experiences in life, but it’s certainly not as bad as you might think. Know the facts, leverage the court system and get back on the road to financial good health.
After all, if Honest Abe can manage it, so can you.