Breaking the Stigma: Why Filing for Bankruptcy Is Not a Moral Failure

Many people feel embarrassed, ashamed, or even guilty when they think about filing for bankruptcy. Some worry about what others will think. Others believe that filing means they’re irresponsible or trying to cheat the system. But the truth is far more compassionate—and far more legal.

Bankruptcy is a legal tool created by Congress for people facing overwhelming debt. And while courts do evaluate good faith and honesty, filing for bankruptcy is not a moral failure—it’s often the smartest and most responsible step a person can take to get back on their feet.

Bankruptcy and Good Faith: What the Law Really Says

The law doesn’t punish you for falling into debt. But it does require honesty, transparency, and good faith.

Under 11 U.S.C.A. § 727(a), a court can deny a Chapter 7 discharge if it finds that the filer acted in bad faith—such as hiding assets, racking up debt right before filing, or lying on their bankruptcy paperwork.

In In re Lichtenstein, 328 B.R. 513 (2005), the court emphasized the importance of acting in good faith. If a debtor takes unfair advantage of the bankruptcy system or deliberately misleads creditors, they risk losing the protection of a discharge.

Similarly, 11 U.S.C.A. § 1325 (for Chapter 13 cases) requires that a proposed repayment plan be filed in good faith. In In re Roby, 649 B.R. 583 (2023), the court looked at the “totality of the circumstances” to determine if the debtor’s repayment plan was sincere, reasonable, and honest.

But What If You Could Repay the Debt?

Many people mistakenly believe that you can only file for bankruptcy if you’re flat broke. That’s not entirely true—especially in Chapter 7.

While Chapter 7 bankruptcy does not require you to prove you can’t repay your debts, courts do look at your overall financial condition. If it seems like you're using bankruptcy to avoid paying when you clearly could, it might be considered an abuse of the process.

In In re Bryant, 474 B.R. 770 (2012), the court evaluated whether the debtor’s financial situation truly justified Chapter 7 protection. If someone has high income or valuable assets, the court might steer them toward a Chapter 13 repayment plan instead.

The Problem with Last-Minute Spending Sprees

Timing matters in bankruptcy.

If you rack up a lot of new debt right before filing, the court may question your intentions. Under 11 U.S.C.A. § 727(a)(2), this kind of pre-bankruptcy behavior can lead to denial of discharge.

In In re Motaharnia, 215 B.R. 63 (1997) and In re Lavilla, 425 B.R. 572 (2010), the courts emphasized that debtors must explain why they’re filing, especially if they recently discharged debts or took on new obligations. It’s not illegal to accrue new debt before filing—but if it looks suspicious, it can be a red flag.

In some cases, it can result in settlement with the bankruptcy trustee, or even denial of discharge entirely.

Don’t Lie. Don’t Hide. Don’t Cheat.

The biggest mistake someone can make in bankruptcy is dishonesty. That includes failing to disclose income, assets, or transfers.

Under 11 U.S.C.A. § 727(a)(4), a court can deny your discharge if you make false statements or hide information about your finances.

In In re Piazza, 451 B.R. 608 (2011), a debtor tried to maintain a luxury lifestyle while dodging creditor obligations. The court found bad faith and dismissed the case. The same happened in In re Wilcox, 251 B.R. 59 (2000), where the court found the debtor unfairly manipulating the system.

In In re Ferrell, 227 B.R. 706 (1998), a Chapter 13 plan was dismissed when the debtors tried to pay only a small portion of debts that couldn’t be discharged, such as certain taxes or student loans.

The lesson? Be honest. Be transparent. Be real.

You’re Not Alone—And You’re Not a Bad Person

Every year, hundreds of thousands of Americans file for bankruptcy. Most are hard-working people who faced job loss, medical bills, divorce, or economic downturns. Bankruptcy laws exist to give people a second chance.

You don’t have to carry the weight of shame. Filing for bankruptcy doesn’t make you a bad person. It makes you someone who is using the legal tools available to regain control and rebuild.

Final Thoughts: Bankruptcy Is a Fresh Start, Not a Scarlet Letter

If you’re thinking about bankruptcy, talk to an experienced attorney who can guide you through the process and ensure you're acting in good faith. Courts aren’t looking to punish people who are trying to do the right thing—they're looking to prevent abuse, fraud, and gamesmanship.

And remember: Filing for bankruptcy is not the end. It’s a new beginning.

Need help from a compassionate and experienced Maryland and California bankruptcy attorney?
Call Iris Kwon at Bankruptcy Near Me today:
📞 301-550-5408 or 714-798-2544 | ✉️ info@bankruptcynearme.org

We help you move forward—honestly, legally, and without judgment.