Should I feel guilty filing for bankruptcy?

One reader is feeling the guilt, despite being urged to file by others.

By Smart Spending Editor Jul 2, 2013 6:59PM
This post is by Stacy Johnson of partner site Money Talks News.

MNS Money partnerI get a lot of questions about the best way to get out of debt, but few about the morality of different choices. Here’s a recent reader email that addresses the issue.

My name is Jodi. I recently signed up to get your newsletters so that I can understand what’s the best way to deal with this subject.

I currently owe about $20,000 in credit card debt. I was told by a lawyer that I should file for bankruptcy. I don’t feel right about bankruptcy because it’s my bill and I feel I should at least make an effort with the companies to see if they could lower the amount so that I can consolidate the bills. Can you please educate me as to what would be a better deal for me? Your newsletters are very helpful.

While dealing with debt is pretty cut and dried, dealing with the moral obligation to repay a debt is a bit more slippery. The type of person you are, your resources and the type of debt you owe all play a part.

Over the years I’ve heard from many people agonizing over the moral dilemma of filing bankruptcy. As a result, I’ve gradually arrived at the conclusion that most should think more about what will best serve their financial purposes and less about moral imperatives. This is especially true when it comes to debts like credit cards.

Before I explain why, let’s spend a minute on something simpler: what to do when faced with crushing debt. Check out the following video about rebuilding your credit after bankruptcy.
When should you file bankruptcy?

Something a bankruptcy lawyer told me in the course of an interview years ago stuck with me: Consider bankruptcy when your minimum payments exceed your ability to meet them.

In Jodi’s case, a bankruptcy lawyer has already advised that she should file. Granted, this lawyer isn’t objective because the lawyer stands to profit from Jodi’s case. But if the advice rings true to Jodi, she should probably follow it. If not, she should get a second opinion, perhaps from a credit counseling agency or another lawyer.

What about negotiating with the creditors?

Jodi is wondering if it’s worth a try to call her creditors and see if she can negotiate lower amounts so she can pay her debts. The answer: Sure, why not?

But while she can do it herself, I’d suggest using a professional to help.

A credit counseling organization can step between you and your creditors, set up a repayment plan and probably get some of your rates reduced and fees waived. Read more about that option here.

A lawyer -- like a bankruptcy lawyer -- could help you negotiate a lump-sum payment with the creditor. In Jodi’s case, for example, she could offer $10,000 today as payment in full for her $20,000 debt. The obvious problem is she’ll need $10,000.

There are companies that offer to settle debts, then allow you to make monthly payments until you save up the necessary lump sum. But many are shady and charge high fees. Read more about that option here.

What about your moral obligation?
Years ago, the answer to the question of “Should I pay my debts?” was simple: Of course.

This is the way I was raised, Jodi was raised and if you had typical parents, you were raised: A person of honor meets his or her obligations. Your word is your bond. A person who reneges on his debts isn’t to be trusted.

Past due stamp sitting on three bills. © Derek E. Rothchild, Stockbyte, Getty ImagesBut after more than 20 years as a consumer reporter, it’s not so black and white to me. One reason: Many lenders expect you to have morals, but demonstrate little themselves.

I can point to many examples: Credit card companies that double interest rates when you’re a day late with a payment. Banks charging multiple $35 bounced-check fees if you overdraw your account by $2. Tax preparation companies charging triple-digit rates so you can have your tax refund a week early. Mortgage lenders lying about credit quality. Payday lenders, rent-to-own furniture stores and pawn shops deliberately targeting the poorest and least educated in our society.

Many lenders wouldn’t hesitate to use bankruptcy to eliminate any obligation they had to you. In fact, some of America’s biggest companies routinely use bankruptcy to get out of union contracts, retiree health care and other obligations.

In short, the playing field’s not level. Because while many people feel guilt when they fail to meet an obligation, corporations aren’t people. They don’t feel anything.

None of this, of course, relieves you of your moral obligation to act responsibly and do your best. But when your best isn’t good enough, there’s no shame in taking advantage of a system that exists to give those who deserve it a second chance. More than a million Americans do it every year.

The bottom line
If your debt problem arose from something beyond your control, like illness, injury or a job loss, there was absolutely nothing you could do, so you have nothing to feel guilty about. Even if your problems arose solely from irresponsible behavior, if you have any sense at all, you’ll likely learn not to repeat your mistakes.

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Either way, Jodi, you have more than an obligation to your credit card company. You have the obligation to protect your sanity, your future and your family by using the lawful system you support with your tax dollars. If it’s your best path, don’t hesitate to take it.

And remember, even if you file bankruptcy and later feel bad, there’s no law that prohibits you from repaying a lender down the road. Bankruptcy relieves you of the obligation to repay debts, not the ability.

More from Money Talks News:


Jul 5, 2013 9:53AM
Guilt ?!?!
There is no shame anymore, don't you know that ?
Just take a look at the Politicians, CEOs, Hollywood Stars, Lawyers, Bankers, etc. etc.

Jul 11, 2013 6:25AM
Loan companies are snakes in general and should treated with the same compassion they treat their customers with, none. They don't care about you, why care about them. They are robbing people all the time with their variable rates and hidden fees. They know the risk the are taking and they still loan people way more money than they can hope to pay. If they get stuck occasionally I consider it the cost of doing their type of business. They use the horrible tactics to try to force you to repay. I've been told to hit up my parents for money to pay my minimum to putting the money owed to them on another credit card. All this from the companies compassionate callers. They will say things to you over the phone they would never say to your face. They wil also say things on the phone they will not put in writing. If they promise you something ask them to send it in writing, or even e-mail it on a business e-mail. They will not be willing do to this very often. If you make a settlement offer make sure their letter of acceptance states that it is accepted as "Payment in full with no recourse". This is critical. If you don't get this you are not settled with them you only made a large payment for nothing. Keep this paperwork forever. They can come back later and try to get you again unless you have proof. Send any correspondence Certified Mail with Return Receipt. Any time you talk to one of them get names and ID number from who you talked to and the date.
Jul 4, 2013 9:15AM
I was forced to file because of a prolonged hospital stay. I tried to make arrangements to pay but the hospital would only take full payment immediately. I was also out of work after 14 years with the State due to cutbacks. Seniority counted for nothing. unemployment expired, nobody would hire a 61 year old with a health history. Bankruptcy or losing my home were my only options. The system failed!
Jul 11, 2013 7:40AM
For those with moral dilemmas: If you can't pay your debt and you know it will be impossible to catch up, its best to file for bankruptcy. At first, you will feel embarrassed but then you will feel a sense of relief and you get a fresh start and a second chance at making better decisions. instead of paying those credit card companies, save the money so you fall in the same situation, save of your childrens college fund, save more monry for your retirement, save for emergencies. At the end of the day its YOUR LIFE and NO CREDIT CARD COMPANY is paying your bills or cares about your future. Do it!
Jul 11, 2013 12:47PM

It's one thing to file because your debt piled up because you needed to buy food or keep the lights on. It's another if you shop with the fervor of an athlete training for the Oympics.


It's also not okay to run up your debt right before you file buying unnecessary things (new couch, lots of clothing).


Bankruptcy is to give you a fresh start, and a fresh start includes not repeating your mistakes and adopting new ways - living within your means (no matter how big or how small), distinguishing between wants/needs and actively managing your money (or otherwise it continues to manage you).

Jul 11, 2013 2:27PM
the fish should never feel bad for taking a bite out of the shark.

Jul 2, 2013 9:15PM

When we built our house, then put in sod, trees, drapes, etc., we owed 37k on CC and car loans.  We went super cheap and paid it off in three years.  Wasn't fun, but got rid of the debt.


I wouldn't file BK unless it was business BK.  The question is, what is the income level and payments.  If you are making 10k a year, there is probably no way you will be able to pay off 20k. 

Jul 11, 2013 12:26PM

Another person's lack of morals should not be a justification for you to drop your morals.


We should not all aim for the lowest common denominator.


Pay your debts.

Jul 11, 2013 3:36PM
I will never understand why the majority of americans WILL ALWAYS BACK BIG BUSINESS but curse the regular guy for not being honest and moral??? I think its simply in america we hate to see others get ahead we are selfish people. BOTTOM LINE banks got millions in free money and get handouts every day! If you can screw them DO IT!!! They would do it to you in a heartbeat!!! If you dont your just an idiot bending over!!!!
Jul 3, 2013 2:32PM
@raykrv6a -  exactly my point - if you can't handle the consequences of using these lenders then don't use them.
Jul 11, 2013 10:35AM

I feel badly for many people who put themselves into unmanageable debt. True, lots of folks have really awful spending habits, but many lose jobs, get taken advantage of, etc. There are tons of people with completely ruined credit (especially those with a bottom rung income) who are truly ignorant and/or simply not intelligent enough to see through the lies of people who make a living off putting Americans into debt. The real money is in the interest and fees, so no entity that offers a line of credit can't make a buck without seeing another American shoulder some payments.


 Ridiculous system. My favorite part is when a loan/credit agent says ANYTHING to get a clients signature and right before the John Hancock goes on paper, the agent makes a brief, seemingly innocent statement legally nullifying anything they've promised. A mess of folks get it from behind at least once at this point. Then there are medical bills.


The bottom line... an honest individual will always be at a disadvantage when conducting business with a dishonest individual, and it's always easier to make a dishonest 2 bucks than it is to make an honest buck.

Jul 11, 2013 11:03PM
I can relate to this dilemma, We were taught as children to be responsible and do the morally correct thing would be to cut where you can and pay what you can. Don't forget that you asked for the loans. Pay back what you can. Today it seems everyone wants a quick easy way out so they can get into the same mess again. Learn from your mistakes and do things differently in the future. I also understand that our country's leaders do not set forth any ethics or moral correctness. Tough decision, in todays world.
you forgot to mention how ins. co. and others charge an arm and leg for their services after a bankrupcty
Jul 5, 2013 9:56AM
2001 my wife ran up credit cards 47,000.00 I worked 2 full time jobs paid them off in 3 years! in 2004 she wanted rental properties So we bought 10 in one year ! The properties were on arms, Lenders said Don't worry about that the increase is only 1 to 2 percent. As time went by the increase was almost double payment! So I bankrupted 993,000.00 in properties that no longer make a profit. Those lenders today are out of business. LOL Also had enough debt issues with her Not counting 53,000.00 she owes to IRS ! SOOO I divorced!!!!!!!  1  and half years ago I fell on ice spent 2 days in ICU hospital 26,000.00 plus no health insurance I offered to pay 100.00 per month  They laughed at me ,Said there taking me to court . Hired lawyer cost 250.00 I now pay 100.00 per month!  In a few more months I'm going to bankrupt that ! Life goes on Things don't always go the right direction . The system is set up and I have no choice but to use it. I always made good money but economy is bad and my line of work doesn't pay like it use to. Been in the same field over 45 years !
Jul 2, 2013 8:12PM
why should the morals of lenders or lack thereof be a determining factor in an individual's moral obligation to pay back a debt? if they overdraw their account, choose to receive their refund early, frequent pawn shops, pay day lenders, or rent to own stores, are they not doing so of their own free will? the playing field is not level in life, period. if people make less than intelligent decisions then they should deal with the consequences.
Jul 11, 2013 4:22PM
"most should think more about what will best serve their financial purposes and less about moral imperatives."  Right, I mean why take responsibility for you actions.  Spread your legs get pregnant get an abortion.  Spend above your means rack up debt declare bankruptcy.  Live on welfare, have more babies, get more money from actual taxpayers.  Build your house in a flood plain, lose it annually to floods, get it rebuilt by actual taxpayers.  Borrow tens of thousands of dollars for a great degree in something useful like women's studies or minority studies or clarinet, work at taco bell and let the actual taxpayer bail you out.  Just a continuation of the ZERO liability culture we live in.   
Jul 11, 2013 10:34AM
Funny I don't feel like a loser for filing B/R  I had too much debt.  I am now paying it back.  After 10 years by law it has to be taken off your credit report.  So I do not feel guilty even though it was mostly credit cards.  But I guess being called a loser for filing is now the least of my worries.  I kind of like that name. lol
Jul 3, 2013 12:56PM
If you have aquired hundreds of thousands in medical debt with no way to pay it then yes declare bankrupt and don't feel guilty because if you was on welfare the government would of picked up the tab. If you got thousands and thousands of consumer debt and file it You are a LOSER!
Jul 11, 2013 6:01AM
I came real close to bankruptcy a few years ago. I instead let my debt lapse and then settled for pennies on the dollar. This took almost a year to settle with all of them. Only one of them actually was going to send me to court. I still ended up making a settlement for around 50% of the debt out of court. Most of these companies will sell old debt to other companies for 50% and let them fight for the money. If you wear this new owner of the bill down you can often pay them 50% of the debt owed or less. I made many deals for 30% of debt owed. Yes this was a big ding on my credit report but it was not a bankruptcy which would have been on there forever. Bad credit can be improved but a bankruptcy will never go away. Even millionaire financial guru Dave Ramsey still has his bankruptcy hanging over his head. This is definitely a better option than bankruptcy. Bankruptcy lawyers don't tell you about it because you don't need their help to do it and they won't get paid. This is absolutely something you can do yourself but it is a very stressful process. You will have to go to war with the dogs that they send after you. They are very good at pushing your buttons. They tried to use my wife and me against each other. They would call one of us at work and then call the other at work and tell the other that we said such and such. Stick together and have a plan. This mess belongs to both of you, legally, so you need to handle it together. It's a good idea to let your family in on it too, they will get called too if they can find a number for them.
Jul 11, 2013 1:42PM
Yes, I suppose it's a little late to worry about morals if you're contemplating leaving others holding the bag on your debt.  People like this should feel guilty - but they don't.  And once this round of debt is written off (passed along to those of who do pay our debts in the form of higher prices - thanks Jodi), they just start the cycle over again as soon as they can get their hands on another credit card.  I wish we could have debtors prisons.
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