Who Profits When Money Trouble Is Shameful?

Talking about our financial difficulties is taboo in this society.

We lionize those who make a fortune. Everyone expects to live the middle class life. What’s wrong with you if you aren’t making it?

We are more willing to talk about our sex lives than our money troubles.

Most of those meeting with a bankruptcy lawyer for the first time manifest some kind of shame, the sense that their financial hole is the sign of a moral as well as financial failure.

And as long as no one will talk about money troubles outside of a lawyer’s office, each person imagines that they are the only one with this sort of problem.

They imagine that they will have to justify their situation to the bankruptcy judge in order to get a discharge. They see themselves alone and exposed.

The profit in cultivating shame

The cult of silence may be why the debt settlement/debt management businesses do so well.

For a price, you are told, you can hire someone to get you out of the hole without declaring bankruptcy and therefore declaring failure.

Only those models seldom work.

Writing one check for the same amount as you wrote a bunch of smaller checks is still the same amount of money. It’s not the number of checks that is the problem, it’s the amount of money necessary to retire that debt, even over time.

The debt settlement model fails because creditors don’t stop trying to collect when contacted by one of these for profit outfits. The first money paid by the consumer goes to the company, not the creditors. No one but the debt settlement folks get paid while you build up money in their hands. The some portion of the creditors getting nothing get fed up and sue you.

The business model works only for the debt settlement folks.

And as long as they can convince you that bankruptcy is an unacceptable choice, they prosper.

Bankruptcy neither shameful nor rare

Over the past five years, an average of 1.3 million consumer bankruptcy cases have been filed. One study of American families done before the Great Recession said one in seven families would be better off if they filed bankruptcy.

Three life events are closely tied to the need for bankruptcy: job loss, divorce, and illness. Hardly a cause for shame in that list.

The “typical” bankruptcy filer is married, middle aged, white, working, and college educated. Doesn’t sound like a pariah class, there.

Tom Friedman, columnist for the New York Times, names generous bankruptcy laws as a necessary feature for a country that wants to thrive in the global economy. People can take economic risks when failure isn’t a life sentence.

Let’s give a shout out for bankruptcy as a vital reset for families burdened with debt they can’t reasonably pay.