Americans are no strangers to debt – our economy runs on it. Tens of millions of individuals and families in the U.S. have debt, but the amount of debt and the ability to pay it off varies widely.

That being said, the annual rate of bankruptcies is inconsistent with the rate of unmanageable debt. According to an estimate from the Federal Reserve Bank of New York, some 17 million U.S. households (about 14 percent of the population) have more debt than assets. Yet each year, less than 1 percent of households file for bankruptcy.

Why do so many people with overwhelming debt fail to consider a legal tool that could help them? Two likely reasons are discussed below.

Hope springs eternal

Americans are invested in the narrative that each of us can pull ourselves up “by our bootstraps” if we just work hard enough. With this narrative comes a hope that things could get better at any time in the near future.

This is, generally speaking, a good attitude to have. But it isn’t necessarily helpful when it comes to debt. The fact is that the American economy is not a level playing field, and getting out of debt isn’t simply a matter of working harder.

By avoiding bankruptcy out of hope that a solution is just over the horizon, you may end up going much further into debt before ultimately deciding to file. That not only means extra stress, but also depleting assets and resources that don’t need to be depleted (like retirement savings).

Misconceptions and myths about bankruptcy

The other reason people avoid filing is likely that they hold misconceptions about bankruptcy that makes it a non-option in their minds. Here are just a few common myths and misconceptions:

  • Myth: You’ll lose all your possessions.
    Reality: Only Chapter 7 comes with the risk of liquidating assets. And in many cases, courts allow you to keep most of your important assets because losing them could leave you in worse financial shape.
  • Myth: You’ll never get credit again.
    Reality: Bankruptcy stays on your credit report for seven or 10 years, but you can start rebuilding immediately. As your score improves, lenders will often be willing to give access to credit again.
  • Myth: Bankruptcy is evidence of irresponsibility and weak character.
  • Reality: Debt problems happen for lots of reasons, many of which could not have been predicted or prevented. Bankruptcy is not a shirking of obligations. It is a powerful tool to help good people get out of bad situations.

Learn about your options before deciding

If you’re struggling with debt, bankruptcy may be a good option for you – or it may not. But you shouldn’t decide one way or the other without getting case-specific advice from a knowledgeable attorney. Then, you can make an informed decision.