Surviving the Emotional Stress of Bankruptcy

Going bankrupt is not only scary but humiliating: shattering self-esteem, affecting relationships and even triggering depression. But it needn’t be the end. On the contrary, it can mark the beginning of a new life – sometimes a better one.

The Circumstances

Of course, people go bankrupt for a variety of reasons. Sometimes it is self-inflicted, sometimes not. Sometimes they deserve their fate, sometimes they are the helpless victims of other people’s greed and stupidity.

First, a common myth needs to be dispelled. People tend to be unsympathetic towards bankrupts, assuming that they were reckless or over-ambitious. In other words, that every bankrupt was living beyond his (or her) means and deserves their fate. No doubt this is often true. Others, however, were cautious and frugal and yet still ended up in debt. Some people have no one to support them – no one to bail them out when things go wrong. Others are so crippled by mental or physical illness they cannot even help themselves.

For example, someone takes out a loan to see him through college. For three years he waits table and lives on cheap spaghetti. A few weeks after graduating, he becomes ill. Instead of starting a full-time job and beginning to repay his loan, he is unable to get out of bed! The stress and upset brings his relationship to an end, which leads in turn to a nervous breakdown. Unable to work, his debts spiral out of control and he is declared bankrupt. Though this may sound melodramatic, it is far from unusual.

Another common reason is sheer naivety. Many people are just too trusting, assuming that those who lend money will be reasonable and patient if the debt cannot be repaid. Others have a poor grasp of numbers. Indeed, many people go bankrupt without ever fully understanding why or how. The terrifying thing about debt is the way it spirals beyond your control. If you lacked financial understanding from the start, trouble is inevitable.

Others become victims of their success. They set up a business and watch it grow. That in turn means a higher standard of living, both for them, their partner and their children. The family get used to expensive vacations in the Caribbean, shopping trips to London and Paris, private schooling for the children, and so on. They overreach themselves and, when the business hits a bad patch, are slow to cut back on their expenses. The rich forget what it means to live carefully, to watch every cent, to keep a record of precisely how much is coming in and going out. Thus they underestimate how quickly debts accumulate. As the business expands, so does their spending; but when the business contracts, their spending often remains the same. By the time they cut back it is too late – the debts are beyond them.

Of course, many people do everything right. They are prudent and cautious, yet still they go bankrupt. No matter how hard you work, no matter how sensible you try to be, fate may have other plans. For example, imagine a family-run business in which a husband and wife supply building materials to local businesses. They employ a distant relation as their accountant, mainly as a favor to his ailing mother. For several years he manipulates the accounts in order to fund his drug habit. When recession hits, and creditors call in their loans, the money simply isn’t there and the business collapses.

Finally, there is pride. Our self-esteem and self-respect depend on how we feel we compare to others. People are often in competition with a hated rival and reluctant to give him the satisfaction of watching them fail. People also fear losing the love and respect of their partner or children. For all these reasons they keep borrowing and refuse to face reality. Indeed, the human capacity for self-deception is boundless.


The consequences of bankruptcy can be appalling. For example, many experience intense shame, especially those with children. By going bankrupt they feel they have let them down. They have also lost control over their lives. Instead of being able to provide for those they love, they must now rely on the goodwill of strangers. Those who ran a family business may feel particularly ashamed. Their brother, daughter, etc., depended on them for a living. They may also have to borrow from ageing parents, causing them stress and worry.

For many, bankruptcy also means loss of identity. For years they prided themselves on their business success, and on the fruits of this success – the detached house, swimming pool, fast cars, etc. Without all this, what are they? For years, their possessions defined them (indeed, people do this all them time: “surely you know Stephen…he’s the one with the Porsche”). When you add in the terrible stress, it is hardly surprising that people suffer anxiety, insomnia, depression, even nervous breakdowns. Many turn to alcohol or drugs – often after years of sobriety – to help them cope.

Then there is the pressure on one’s personal relationships. Marriages often collapse in the wake of a bankruptcy. This may be due not to the bankruptcy itself but the fall out: the depression, alcoholism, and general stress and upheaval. Often, one partner sees the other in a new light (and they sense it). The individual who goes bankrupt may feel that his, or her, partner fails to support them. They, on the other hand, may be outraged that the debts were concealed for so long, thus placing the family at risk. The children may also turn on a parent, furious that they did not support their mother, of father, when they needed them most.

People who go bankrupt have to adapt to a different standard of living. This can be especially tough for the children, who may never have known hardship before. To put it bluntly, going from a large detached house with a swimming pool to a cramped apartment on the wrong side of town is a shock. They may also have to adapt to a new school, one in which their accent and manners make them a target. In turn they blame their mother or father.

How to Cope

Your priority must be your loved ones. Bankruptcy tests people to the limit, but it does not give you the excuse to lash out. If you aren’t careful you will lose everything: not just your money, and possibly your home, but your partner and even your children. Do not allow this to happen. Make a point of not allowing it to happen. You can begin by being honest. When you keep things hidden you destroy trust, and your partner then wonders what else you have been hiding. On top of that, they will be hurt that you felt unable to confide in them.

Sit down with your family and explain everything. Once you have gone through it all, affirm your love for them. Explain that you are determined to set things right, no matter what it takes. Do not underestimate people. So long as you are open and honest they will be there for you. If a friend or loved one does abandon you, don’t let it get you down. Moments of crisis reveal people for what they are. In a sense you are lucky. This is an opportunity to rid yourself of toxic or disloyal people. Handled correctly, such trauma can bring people closer.

Going bankrupt induces similar emotions to bereavement. This is especially true of those whose business has collapsed. Building up a business is an act of love, similar to raising a child: you love and nurture it, often investing superhuman amounts of time and effort. To then see it fall apart can be devastating. As with any death you need time to grieve. Indeed, you may go through a similar range of emotions: denial, fear, depression, guilt, etc. Don’t repress these feelings. The only way to recover is to experience them fully and then allow them to pass.

No matter what happens, keep repeating to yourself “this isn’t the end…I will come back.” Always think of your new circumstances as temporary. So you’ve had to move to a horrible apartment and sell your beloved car. Well, so it goes. The wheel of fortune has turned and, for now, you are at the bottom. But the wheel of fortune also turns the other way, but only if you keep fighting.

In the meantime, learn to be happy with less. Some people will tell you that going bankrupt was the best thing that ever happened to them. At the time it was dreadful, but they also learnt to appreciate other things: to read, spend time with their family, get out into nature, and so on. When things are going well and we are earning lots of money we overlook what really matters. We become wrapped up in ourselves and our possessions, much of which we neither want nor need (and haven’t the time to appreciate anyway).

Anything that lifts you out of your narrow little ego will help. You could begin by immersing yourself in nature and the arts (the nineteenth-century German philosopher Arthur Schopenhauer observed that we are only ever at peace when in the presence of beauty; only then are we free of the endless pendulum swing between craving and boredom). It costs nothing to hire a book from the library, swim in the lake or sea, or lie in the grass and look up at the stars. It may be a cliché, but the best things in life really are free. They also tend to be simple. You can be just as happy with a mug of warm milk and a good book as you can in a five star restaurant with a group of work colleagues.

Above all, avoid self-pity. Life is hard on everyone, but it is merciless on those who give up. Be under no illusion, there are plenty of people out there with more reason to complain than you (a quick visit to the local children’s hospice will soon confirm this). One of the big problems with self-pity is that it eats up time and energy, two things you must now use carefully. It also makes you repellent to others – at a time when you need them more than ever.

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