Filing bankruptcy in New York no doubt seems like an intimidating prospect. But often, the best way to deal with a fear of something is to become more familiar with it. So here are a few interesting things about bankruptcy that will hopefully make it out to be what it really is: a legal process that helps New Yorkers and other Americans reduce their debts and move on with their lives.
1. The word “bankruptcy” comes originally from the Italian “banco rotto” which means broken bench. The way the story goes, banks used to be outdoor markets with transactions conducted over benches. If a banker was unable to make payment, his bench was broken to let everyone know that he was no longer in business.
2. Chapter 7 bankruptcy is merely a legal process for helping people to reduce their debts and get on with their financial lives. Most Chapter 7 debtors, fyi, are actually able to keep most or all of their assets, despite fears of losing everything.
3. Studies show that Americans rely on credit rather than savings compared to people from other countries. To avoid bankruptcy, the best strategy is to buck the American cultural trend of borrowing money for every day expenses and focus on saving. That used to be the norm in the U.S., but somehow it’s shifted over time to be very acceptable to regularly borrow money.
4. Credit cards originally started as something that retail stores offered their customers. And credit cards were originally only available to high-end customers and intended more as a convenience than a way to borrow money.
In today’s society, however, it seems like everyone is one medical problem, one divorce, one layoff away from spiraling into debt. In that context, since American society seems to want people to incur debt (and since the economy seems to rely on expanding consumer spending and housing markets), then having the American bankruptcy system in place as a safety net seems to make perfect sense.
Part of the rationale is humanity–you don’t want to leave people trapped in a virtual debtor’s prison. But a big part of it is also a macroeconomic issue: If too many people are trapped by debt, then it hurts our economy and society as a whole. We need a way to enable people to keep participating as productive members of society.