When people are in debt over their heads and thinking about filing for bankruptcy, they are more worried about what it will do to their credit and less concerned about what people will think.
According to a February online poll by YouGov, bankruptcy is an issue that affects almost a quarter of all Americans. Twenty-three percent of the 1,151 adults who responded to the survey said that they or someone in their household have considered filing for bankruptcy, and 18% have actually done so.
When weighing the pros and cons of filing, credit scores are at the top of the list of concerns. A drop in score was cited by 62% of people surveyed as the number one disadvantage of a bankruptcy filing. While feelings of shame have traditionally been associated with bankruptcy, only a quarter of respondents said it would bother them. But 41% were afraid that certain businesses would not work with them in the future if they filed for Chapter 7.
Income, age influence response
While people in households making less than $40,000 a year are more likely to consider bankruptcy (30%), those who make over $80,000 are more worried about the shame factor. A third of the higher income-bracket respondents said that shame was a big disadvantage of filing.
Older people were slightly more concerned about their credit rating than the general population, with 71% of them feeling that the loss of their good credit score was the worst thing about bankruptcy. Higher-income folks were also more worried about their credit score. Seventy percent of them named it as a major concern.
The upside of bankruptcy, plus some confusion
The advantages of filing for bankruptcy included getting a fresh start (55%), clearing their debt (42%), putting an end to harassment by collection agencies (41%), and saving their home from foreclosure (39%).
Not everyone may have a firm grasp of what debt can be dismissed in a Chapter 7 bankruptcy. It is the most common form of bankruptcy in the United States, but only 28% of respondents knew that alimony debt is exempt. Student loans are also usually not affected by a bankruptcy filing—something that only 31% of those polled knew. A third knew that outstanding federal taxes cannot be discharged through bankruptcy, and 37% were aware that child support couldn’t be cancelled.
The types of debt that can be cleared by filing for Chapter 7 include credit card debt, utility bills, medical bills and personal loans.