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Why Filing for Bankruptcy Is Smart

Written by: Chad Van Horn | Van Horn Law Group

In the public eye, filing for bankruptcy is seen as a sign of failure. The usual image of a man gone bankrupt is someone who cannot make ends meet and thus fails completely, forfeiting his assets and throwing himself at the mercy of the creditors. Nothing could be further from the truth; in fact, bankruptcy is a process designed specifically to improve a person’s quality of life in a multitude of ways.

Filing For Bankruptcy Affords a Fresh Start and Frees You from Stress

In practice, those who declare bankruptcy are people acutely aware of their financial situation and choose the right tools to tackle their problems. After you run out of options, bankruptcy remains an open way to solve your problem. According to a recent study , households that have declared bankruptcy exhibit better long term financial health than those who avoid it like the plague.

It's not an experience that’s entirely free of hassle or stress, of course, but it focuses all the problems into a single moment in time before leaving you with a fresh slate (if filing for Chapter 7 bankruptcy) or with a clear roadmap to success for the next several years (under Chapter 13). Bankruptcy is a drastic, but ultimately positive measure.

It Helps You Make Smart Decisions

Financial stress, especially when it brings you into poverty (objective or subjective) is actually damaging to your mental health. A 2013 study brought to the fore conclusions that shouldn't be surprising: Financial stress causes people to make poor or very poor decisions when it comes to their personal finances. In fact, it's estimated to cause a loss of up to 13 IQ points .

Filing for bankruptcy is smart because it helps you either discharge your debt or restructure it. In both cases, it helps you stabilize your financial situation and relieve yourself of the burden it imposes on you. Indirectly, it also helps you make smart decisions by preserving your smarts.

You're Not Alone

Bankruptcy rates are high across the nation if we take into account the broad view. The bankruptcy rates have soared over the past forty years. In fact, they have quadrupled between 1980 and 2004, and rose by a factor of 80 when compared to 1920 . While many would like to pin the blame on individuals for bankruptcies, the reasons behind this surge are numerous and few are really connected to a debtor's inability to take care of their finances.

It's a combination of a changing economy, inflation, rising wealth inequality, prices and the runaway education debt that topped $1 trillion recently. A debtor who declares bankruptcy shouldn't feel shame. It's an adequate, smart response to an inadequate financial burden placed on them.


When your back is up against the wall, figuratively speaking, you should use appropriate measures. Bankruptcy is drastic, but it is a smart move, made by smart people. Limping ahead, chafing under the burden of debt is not a sustainable solution and it will end up giving you more trouble than facing the problem head on and eliminating it once and for all.