When Michael Scott from The Office faced financial disaster, he considered bankruptcy. Could bankruptcy be right for you?

Michael Scott is the beloved protagonist in the NBC sitcom The Office, who's well-liked for his sense of humor and childlike nature, even when it often leads him into trouble. In The Office season 4, episodes 7 and 8, titled Money Part 1 and Money part 2, Michael finds himself in a financial disaster. Michael can often get caught up in squandering money because, like a child, he enjoys buying fun things like magic kits and sometimes wants to impress the people around him.

The Office fans learned this early on in the show's second-season Christmas episode, "Christmas Party," when Michael broke the gift exchange budget rule to show off in front of his coworkers. At the Dunder Mifflin office, Michael and his employees agreed to do a secret Santa gift exchange with a $20 price cap. However, after receiving a Christmas bonus of $3,000, Michael buys a $400 iPod for his coworker Ryan Howard. Michael prides himself on how much he spent on Ryan, though no one else spent close to that much. Instead of looking like a hero, his coworkers were confused about where Michael got the money from and why he would spend so much on Ryan. Michael doesn't learn his lesson, and his irresponsible spending continues throughout the series. In Money Part 1 and Part 2, Michael's reckless spending leads him to consider filing for bankruptcy.

Michael Scott Hides His Financial Struggles from His Girlfriend When Shopping for Furniture for the Home

The episode kicks off with Michael and his girlfriend, Jan Levinson looking through a magazine and picking out furniture for their home when Michael expresses concern over how much a couch will cost. In a talking head, Michael tells cameras he's been having money struggles lately. However, he doesn't express these issues to Jan because he's embarrassed and ashamed. Keeping this a secret from Jan only worsens his problems, as overspending on furniture is outside his current budget. Because Michael won't speak up, he digs himself into a deeper hole.

Michael's reckless spending is apparent in a later scene when he mentions that he and Jan used to have two cars but sold one to save money. However, the car they now share is a Porsche, a pretty pricey vehicle. Michael could have saved a lot more money if he and Jan had gone for something more affordable. However, as usual, Michael is concerned about how he appears to other people and what his girlfriend thinks of him.

How Michael Scott Made Multiple Attempts at Getting Out of His Overwhelming Debt

Michael tries many attempts to get out of debt, like taking a second sales job, which he hides from Jan and his coworkers, and inquiring about gambling with his coworker Kevin Malone, a frequent gambler. While many make substantial amounts of money gambling, it's a considerable risk, especially for those unfamiliar and inexperienced with the vice. Kevin ultimately can't give Michael any helpful advice, but his interest in the topic shows just how uneducated he is regarding money, which led him to his financial situation.

Finally, when Michael's coworkers confront him about his money issues after gathering in the breakroom, Michael finally admits to his troubles. He's inspired when Creed Bratton suggests he file for bankruptcy. Michael is uninformed about bankruptcy, and his only knowledge involves the board game Monopoly, where anyone who goes bankrupt loses the game. However, Creed wins him over when he tells him: "Bankruptcy, Michael, is natures do-over. It's a fresh start. It's a clean slate." Michael relates this to the witness protection program, which he says he always wanted to be a part of because it releases you from all debts and baggage. Michael then walks back into the office lobby announcing, "I declare bankruptcy!"

What a Thorough Look into Michael’s Finances Revealed About His Spending Irregular Habits

Michael's coworker Oscar Martinez later helps him go through all his spending and credit card debt. He learns Michael spent $125 on Amazon buying Best of The Muppet Show on DVD, and he spent $1,2000 on an exercise machine called a core blaster extreme. Michael tries to justify his purchases, but it's evident there's no need for him to be spending so much on nonnecessities, and if he ever wants his finances to recover, he has to stop.

Oscar makes Michael a graph to track his spending habits. The red bar covers purchases considered nonessential, and the black bar covers what Oscar considers things no one ever needs to buy. For Michael, this includes magic kits and professional bass fishing equipment. Oscar wants to set Michael and Jan up with a debt consolidator, but Michael is still so fearful of telling Jan the truth that he runs away. Jan finds him and explains that running away won't solve his problems. "Your creditors can find you anywhere with ease. Your debt follows you around the world," she tells him, leading him to accept her help.

Michael Knew He Needed Help, But Had No Idea Who to Turn to

Michael found himself in a lot of trouble because he was irresponsible with money and didn't know how to seek proper help. Recklessly spending on magic kits and exercise equipment he didn't use landed him in debt, and owning such an expensive car to withhold an image of opulence only worsened his situation. His inability to open up to his friends and girlfriend about his struggles didn't help either. Michael had gotten himself into a huge mess, and burying himself in shame and embarrassment didn't do anything to solve his debt.

While he didn't end up filing for bankruptcy, Creed's suggestion may have been the smartest of all. Had Michael started gambling with Kevin, he likely would have ended up with more debt, and based on his past spending habits, it may have become an addiction of his, which could lead him to lose everything and destroy his relationship with Jan. While Creed didn't give Michael the best information on bankruptcy, admitting he transfers all his debt to a fake identity, there are a lot of ways filing for bankruptcy could have benefitted Michael.

Struggling With Finances and Irresponsible Spending Is Not Just Something We Encounter on TV

According to a white paper developed by AdvisorCheck (which can be downloaded for free with a free membership), the mismanagement of personal finances has cost Americans a total of $352 billion in 2021 alone. It’s estimated that about 65% of America households are unhealthy and unable to manage their finances.

Yet, many people might feel alone in their problems and that they are the only ones experiencing this. However, that is usually not the case; the truth of the matter is that many people are unsure of what to do to get themselves out of their situation.

Some people might not even have irresponsible spending habits either. They might just be affected by the current state of inflation we are in, which will continue to get worse.

Most people squirm when they hear the word bankruptcy and think it is the worst-case scenario. While it's nothing anyone would look forward to or aim for, it is not the end of the line, and there are many ways it could improve one's life. Bankruptcy can relieve anyone drowning in debt with no other way out. In Michael's case, if he didn't have Jan to help him, filing for bankruptcy would resolve all his debt caused by his irresponsible purchases. As Creed suggested, it acts as a fresh start and a clean slate.

However, filing for bankruptcy is not as simple as walking into the office and announcing, "I declare bankruptcy," as Michael did. Before filing for bankruptcy, it's important to figure out which type to file for, depending on what works best for the specific situation.

The Various Types of Bankruptcy and the Differences Between Them

The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. The main difference between the two is that Chapter 7 focuses on relieving debtors of their debts, while Chapter 13 focuses on creating a repayment plan to pay off those debts. With Chapter 7, debtors may have to sell some of their assets, but by the end of the process, they've been relieved of their debts and have a fresh start. Unfortunately, not all debts can be forgiven. Things like child and spousal support, obligations to the IRS, and student loans can not be forgiven. Typically, nonessential assets must be sold, meaning debtors can keep their homes, cars, if inexpensive, and anything they might need for work, like laptops or office space. Though, they would have to give up any vacation homes, expensive cars, and valuable jewelry.

Chapter 13 is a little different. While it may sound worse since the debtor must repay their debts, it has some benefits, too, because it allows them to keep their assets. Chapter 13 is best for individuals with a steady income but struggling to repay their debts. The individual filing for Chapter 13 sets up a plan to pay back creditors within three to five years, and while they're setting up their plan, creditors are not allowed to collect any money from the debtor.

While bankruptcy might sound scary, one pro is something called an automatic stay. This is granted as soon as someone files for bankruptcy, and it prevents creditors from collecting payments and protects them from eviction, foreclosure, and other actions. This would be beneficial for Michael and Jan as they wouldn't lose their home due to Michael's debt.

Michael Scott Faced Credit Card Debt as His Number One Source of Debt (Which Is the Case for Many Households Across America)

Michael admitted in the episode that he was in a lot of credit card debt. Luckily, filing for bankruptcy could relieve someone of most or all of their debts. Meaning Michael wouldn't have to worry about paying off his professional bass fishing equipment anymore. Plus, the court will automatically assign anyone who files for bankruptcy a representative to help communicate with creditors. Bankruptcy can also help with back taxes or taxes that haven't been fully paid when they were due. Most taxes can't be dismissed when filing for bankruptcy, but income taxes that are at least three years old can.

There are certain situations where a bankruptcy might sound more attractive than paying off debts. If there is a sheriff levy assigned to your bank account and money is directly withdrawn from your bank account immediately after you deposit money into it, that might force you to move into working with money orders and working with cash checking facilities. Other situations may be when wages are being garnished directly out of your paycheck to pay back a debtor as well. Also, if your debts are at an overwhelming amount and there doesn’t seem to ever be any hope of getting out of the situation at all, this could also be ample cause to file for bankruptcy as well.

Though this may sound shocking, filing for bankruptcy can actually improve credit. For people who had bad credit before filing for bankruptcy, their credit might increase after being relieved from their debts. Then, they can start fresh building their credit and can typically get approved for a new credit card pretty quickly. On the other hand, there's also a huge possibility filing for bankruptcy will hurt credit score. If the debtor had a high credit score before filing for bankruptcy, it will massively drop. This will make it hard to buy expensive things, like luxury cars or fancy homes. Bankruptcy can also follow an individual for up to 10 years. For those whose credit scores dramatically dropped, it will be hard to rebuild credit or get approved for credit cards. If they do get approved for a credit card, they will likely face high-interest rates and have a very low credit limit.

While some of these pros sound great and might send anyone into the same excitement that Michael felt when Creed told him about filing for bankruptcy, there are some significant downsides as well.

Chapter 7 bankruptcy can cause an individual to lose some valuable assets. As explained before, debtors may have to sell valuable items like luxury cars and vacation homes. In regards to The Office, Michael and Jan would not be able to keep their Porsche, which would be a huge blow to Michael's ego.

This might sound contradicting as filing for bankruptcy is meant to help people get out of debt, but it comes with a price, literally. Prices vary depending on which bankruptcy an individual files for, but in both cases, debtors will find themselves spending over $1,000, and possibly over $3,000 for Chapter 13.

The process is also, unfortunately, not a quick one. Bankruptcy can take years to process. As discussed before, Chapter 13 bankruptcy can take from three to five years, meaning the debtor is not set up for a fresh start right away. As for Chapter 7, the process takes a few months, but still longer than anyone would want to spend getting out of debt.

Another issue applies to anyone who doesn't own their house. While bankruptcy prevents debtors from losing their homes, this is only guaranteed for individuals who own their property. If a debtor rents a home and is behind on their payments, they might face eviction, and it may be hard to rent property in the future. Some landlords may see this as a concern and will deny individuals the ability to rent from them. Bankruptcy is on public record, meaning there's no hiding from it after filing.

Could Bankruptcy Alter One’s Professional Career?

One of the worst parts of filing for bankruptcy is it could impact one's career. It will hurt workers who deal with money the most, like accountants or financial advisors, as people who are looking for someone else to look through or manage their money might be more inclined to work with someone who is responsible with their own money as well. Since Michael works in sales as the regional manager of a paper company, filing for bankruptcy could potentially harm his career. He's given the people around him good reason to believe he doesn't handle money well, and filing for bankruptcy could justify their beliefs about him and his financial decisions.

Filing for bankruptcy can also prevent debtors from buying houses, causing them to wait for around one to four years before qualifying for a mortgage, and their car insurance may skyrocket (not due to the bankruptcy in and of itself, but due to a lower credit score).

After weighing the options, some might find bankruptcy is right for them, and others may decide on a different option. In The Office, Michael didn't have to file for bankruptcy because Jan offered to help him. However, not everyone has a loyal and supportive partner willing to help them out of trouble, but luckily there are other options.

“People might be scared of what a bankruptcy could do to one’s career or life,” says Leonard Kim of AdvisorCheck. “I filed bankruptcy over a decade ago when I thought that I couldn’t get out of the $50,000 of debt that I had accrued. I wasn’t able to wipe out all of the debt, however, as around $10,000 of that followed me around as a student loan. At first, I wanted to wait it out and see if I could recover from it, but due to multiple years without having a real job, I noticed that it wasn’t going to be sustainable, so I filed for bankruptcy. After I filed, I was able to get a credit card immediately (a horrible one, but still a credit card), then eventually got a second and a third credit card. After a few years, I was able to get higher and higher credit lines, and eventually I had a 750 credit score. While some employers do look for bankruptcies on one’s credit, I never had a challenge finding a career, nor did I have trouble with leasing a house or an apartment in the later years when my score had fully recovered to a higher score than prior to bankruptcy.”

Who to Speak with Before You Decide to File for Bankruptcy

One alternative would be a financial advisor. The financial advisor can review the individual's income, debts, and other expenses to help them create a budget and a plan for getting back on track. For some, if their debt isn't as severe, this may be all they need to get back to a stable financial place. Working with a financial advisor could also help someone get their lives on track even further than just getting out of debt, and help get them back on track for achieving their other financial goals, whether that is homeownership, buying a nice car, traveling the world or retiring in comfort.

Another choice is debt consolidation, which Oscar suggested for Michael and Jan. This is best for individuals struggling to pay debts but still maintain a decent credit score. With debt consolidation, one can move their high-interest credit cards to a loan with a monthly payment. There is also the option for a transfer credit card with 0% interest for those not interested in loans. Though, there's typically a fee of 3% or 5% of the transferred amount. As long as individuals are responsible with their credit cards, there aren't many cons to debt consolidation. If you were to meet a financial advisor first, they could inform you of whether or not debt consolidation is right for you, or to even potentially speak with a credit counselor who can help the individual in debt work out a plan with their creditors to lower their payments.

If neither of those works, a debt management program is another option. A credit counselor can organize this and help with creating an amount the individual can pay off each month. The counselor also talks with creditors to help resolve debt within three to five years. Like bankruptcy, debts like child support and student loans can not be forgiven with a debt management program. The counselor will communicate with creditors that the individual is at risk for bankruptcy, and it would benefit the credit card company for them to pay off debt over time than for them to be forgiven of all their debts and the company gets nothing.

Creditors will likely agree to this, but they are not legally obligated to and could turn down the offer. A debt management plan is a safer option than bankruptcy but still has the potential to hurt credit score. Credit card issuers will require all accounts in the plan to be closed, and even one credit card not on the plan with a high balance can decrease the credit limit. Unfortunately, there is a fee to set up the debt management plan, along with a monthly fee. If an individual can't keep up with their plan, the only other option may be to file for bankruptcy.

A fourth option is debt settlement. These programs are riskier than others. They set up a savings account for the individual to make deposits to instead of paying off creditors. Once a good amount of money builds up, they will use it to help pay off creditors. There are a few differences between a debt settlement and a debt management plan. Debt settlement companies charge higher fees and potential maintenance fees. The settlement can also do major damage to credit scores. However, after four months without payments, creditors may write off debts.

You Can Get Out of Debt, Get Your Life Back on Track AND Secure Your Financial Future

While all of these are preventative measures, if you are feeling the pressure of potentially drowning in debt, you first stop should be with a financial advisor. They will let you know if any of the above options are right for you, or if they could do their part to help you curtail your life and get it back on track, then create a flourishing future for you as well. Financial advisors often times are experts who look out for your best interest, especially if they are bound to a fiduciary standard. They want to see you out of debt. They want to see you succeed.

If Jan wasn't able to get Michael out of his debt, he had plenty of options, but like Oscar suggested, meeting with a finance professional may have been his best choice as he was still making a good amount of money at his job. Though, cutting down on all his unnecessary purchases would have been step one. While Michael's debt came from reckless spending, this isn't the case for everyone. Some reasons someone would file for bankruptcy include medical bills, divorce, or other unexpected emergencies. An important thing to remember, which Michael struggled with, is there should be no shame attached to filing for bankruptcy. Luckily it's not the only option and no one should rush into it without fulling understanding what it means and deciding if it's best for them. If it is, it may be the perfect way to turn their life around.

Think you might need to find a financial advisor to help get your life back on track? Look through our database to find a financial advisor near you. You will be able to not only search for an advisor but compare them to others and get detailed background information about what types of clients they currently see, along with their credentials, disclosures (if any) and other businesses that they might be involved with. We want to see your life get back on track, and financial advisors will be able to help you work on a plan to achieve that.

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Written by Gina Wurtz, Screen Rant contributor

Fact checked by Billy Quirk

Reviewed by KJ Kim

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