Bankruptcy is not a “Dirty Word”

I spend a lot of time talking to clients (and prospective clients) about the social stigma of filing bankruptcy.  That is probably the primary reason that people who need the protection bankruptcy offers wait too long to file, or don’t file at all.  Many people struggle with overwhelming debt for far too long, exhausting their resources (and often the resources of family members as well) because of their perception of bankruptcy.

So I was struck by something the Seventh Circuit Court of Appeals said in a recent decision involving NBA great Scottie Pippen.  Pippen had sued several media outlets for defamation because they reported, erroneously, that he had filed bankruptcy.  The three-judge panel found that such a report was not defamation per se.   Defamation per se essentially means someone says  something so bad about you that you don’t have to show that it damaged you–we assume that damage occurred.  (Think of it like the playground taunt that is so bad you don’t get in trouble if you sock the person who said it.)  In the Pippen case, the court said.

A similar taint does not attach to the reputation of people who go bankrupt. Many innocent reasons lead to financial distress. Readers of the defendants’ statements who mistakenly believe that Pippen is insolvent readily could conclude that his advisers bear the blame.

Some people need bankruptcy because of bad financial advice, others because of an illness and resulting bills, or because of the loss of a job, or a divorce, or a combination of those things.  Some people need bankruptcy simply because their income has dropped, or just hasn't kept pace with the cost of living.  Given that there are so many factors that are out of your control, why should the perception that bankruptcy is a dirty word keep you from seeking the protection that you need?

I think of bankruptcy like surgery.  I don’t know anyone who wants to have surgery.  (From that statement you will conclude, correctly, that I don’t know any celebrity plastic surgery addicts.  Thankfully.)  But if you are sick, or in pain, and surgery will correct a problem, or give you a better quality of life, or save your life, how many of us would refuse?  Bankruptcy is financial surgery.  You eliminate the bad stuff, and start over fresh without a financial tumor weighing you down. Without the stress of bill collector calls.  Without trying to decide which bill to pay when your paycheck just won’t stretch anymore. Without worry over foreclosure or repossession.

No, bankruptcy is not a dirty word.