We can tell you upfront that there is no shame in bankruptcy. The vast majority of people that we've seen in our practice didn't end up in bankruptcy because they intended to get themselves into debt they couldn't afford to pay. But still, many people feel guilty about filing bankruptcy or worry that people will think poorly of them if they find out. Today we'll talk about the stigma of bankruptcy, how it's evolved over time and why you shouldn't be concerned about it.
History of bankruptcy perceptions
In Europe in the early ages, insolvency could be punished by flogging or imprisonment. In other less “civilized” cultures, debtors who couldn't pay had to bang their naked rear end on a rock while their neighbors taunted them. Back in Colonial times in America, if you didn't pay your bills, you could have your hair publicly shorn (i.e hacked off with a knife), the palms of your hands branded and your ear nailed to a pillory in the town square until you pulled it free or it was cut off.
Thankfully, these brutal traditions were set aside, but the scorn associated with unpaid debts was not until some years later. Prior to the 1960s, the media characterized those that had to resort to bankruptcy as either corrupt or possessing poor judgment. But beginning in the late 1960s and moving forward, sentiments changed a sense of compassion was applied to perception of bankruptcy which has continued to evolve through our current times.
The study of bankruptcy perceptions
Prior studies on how bankruptcy was perceived have been criticized for basing their study conclusions on talking to prior bankruptcy filers themselves. But the study we'll discuss brief today took a different tactic and examined articles written in the press about bankruptcy as the basis for their findings. They decided to look at The New York Times because it's the largest US newspaper in circulation and has been archived since the 1860s.
The results are interesting. Prior to the 1960s, articles in the Times that discuss consumer bankruptcy mostly blamed debtor transgressions and characterized them as irresponsible. Then the dialog changed and bankruptcy filers began to be seen as hardworking and struggling. It was began being referred to as a basic civil liberty and consumer right. There was also expanding conversation about events that led to bankruptcy that were out of the consumer's control including unemployment, recession, illness, auto accident, medical bills or other hardship.
Why there's no shame in bankruptcy today
If you truly are deep in debt that you cannot pay, have tried to dig yourself out but things just aren't getting better, you shouldn't let fear, guilt or any sense of shame hold you back from considering bankruptcy as an option. While it's not right for everyone and it is a serous step, there's really no stigma attached to filing bankruptcy these days.
Yes, all bankruptcy filings are in the public record, but that record is not as public as you might think. It's in a federal government database online that you can only access with a special account that few people bother to – mostly lawyers. So you needn't worry about your friends, neighbors or even family members knowing about it unless you tell them.
Click here to read the fascinating study The Evolution of Bankruptcy Stigma by Rafael Efrat, Professor in the College of Business and Economics at California State University.