Bankruptcy

WHAT IS A BANKRUPTCY?

Bankruptcy is the declared inability of a person or organization (known as the debtor) to pay back the debts owed to one or more creditors.

By filing for bankruptcy proceedings, the debtor frees himself from insurmountable debt. The Bankruptcy Court will protect the debtor from his creditors.

The two most common types of bankruptcy filings are:

• Chapter 7 Bankruptcy - This type of bankruptcy allows the debtor a fresh start with all debts being “wiped out”. This type of bankruptcy is mostly used by those debtors with general, unsecured debts, such as hospital bills or credit cards.
• Chapter 13 Bankruptcy - This type of bankruptcy is mostly used by those who fall behind in their car or mortgage payments. This type of bankruptcy allows the debtor to repay and restructure his or her debt.

Bankruptcy is a complex and confusing area of the law. A person who seeks to file bankruptcy should avail him or herself of a qualified attorney to obtain competent guidance through the legal proceedings.

A BRIEF HISTORY OF BANKUPTCY LEGISLATION

The year 1542 marked the inception of the first insolvency laws in England. In 1800, congress passed the first bankruptcy law in the United States.
There was little legislative activity in Congress involving bankruptcy legislation until 1898, when the Bankruptcy Act of 1898 was approved.
A substantial overhaul was subsequently enacted in 1938. Another significant change was approved in 1978.
The Bankruptcy Code of 1978 remained mostly unchanged until 2005 when Congress passed the controversial Bankruptcy Abuse Prevention and Consumer Protection Act which established a “means test” and “presumptions of credit abuse” depending on the income of the debtor.

Even with those changes, the Bankruptcy laws are still available for those honest persons who are unable to comply with their financial obligations. The Act of 2005 provides to the debtors the relief they seek from harassing creditors and identifies those individuals who can pay back a portion of their debt. As in the prior legislation, there are exemptions in existence which allow the debtors to keep their retirement plans, some equity in their homes, cars and other possessions.

FREQUENTLY ASKED QUESTIONS

Do I need an attorney to file a Bankruptcy?
ANSWER: While you have no legal obligation to engage the services of an attorney, you will find that the bankruptcy laws are too complex to do the work on your own. You will probably need the guidance and advice of an attorney specialized in this area to comply with the initial filing requirements and in the subsequent procedures.
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I already obtained a bankruptcy Discharge. Can I re-file again?
ANSWER: Yes but the law requires a waiting period. On a Chapter 7, the previous waiting period was 7 years. The recent changes require a 9 year waiting period.

Does the Bankruptcy filing affect my credit record?
ANSWER: While the credit reporting agencies may enter your bankruptcy discharge in their records, the bankruptcy code does not prohibit, impede or restrict your ability to obtain new credit once you are freed from your obligation to pay your former creditors. However, you must take a credit counseling course.

YOU ARE NOT ALONE.

If you feel depressed because of your financial situation, you should know that many great persons accomplished great successes after their bankruptcy. You are not alone! Here is a short list of persons who encountered severe financial hardships and declared bankruptcy:

• Donald Trump, investor
• Michael Jackson, singer
• Kim Bassinger, actress
• Mike Tyson, boxer
• Willie Nelson, singer
• John Connally, former Texas Governor
• Henry Ford, auto magnate
• Henry Heinz, ketchup magnate
• Thomas Jefferson, patriot and President
• Walt Disney, creator of Mickey Mouse
• Burt Reynolds, actor
• Mark Twain, writer and humorist
• Elton John, composer
• Wolfgang Amadeus Mozart, composer