“B” Is For Bankruptcy

B is for bankruptcy
It sounds basic but, since these are the ABCs of bankruptcy, “B” is for Bankruptcy. A lot of people  think that bankruptcy might the solution to their problems  but they just aren’t entirely sure what it is. There are a lot of myths, misunderstanding and misinformation out there which make some people not want to file. This post will hopefully clear some of these up. You cannot use it as a financial tool if you don’t understand what it is.

Bankruptcy is in the United States Constitution

Bankruptcy is a really old concept. It was established in the Constitution in Article 1, Section 8 in which Congress was empowered to create “uniform laws on the subject of Bankruptcies throughout the United States.” The purpose of bankruptcy is “[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” This “fresh start” was confirmed by the United States Supreme Court in Local Loan Co. v. Hunt, 292 all the way back in 1934.

How does it work?

Basically, a debtor overwhelmed by debt or needing protection from creditors, files for bankruptcy protection by preparing a petition under one of the chapters of relief. The debtor must disclose all assets, debts, income and expenses. Also, the debtor must disclose all financial affairs from the past couple of years. Complete disclosure is essential. Total cooperation with the trustee and the court is mandatory. If it appears that you are unable to pay your debt, the discharge will eliminate your personal liability from certain debts and creditors are forever prohibited from trying to collect.

Dump your debt and keep your stuff.

A great majority of filers get to keep their house, car, retirement accounts, pensions, savings and tax refunds as well as all their household goods. The bankruptcy trustee cannot take everything you own and sell it off. Each debtor gets their own exemptions which allows them to protect their property up to a certain value. The Federal exemptions are actually pretty generous and can be maximized to protect virtually everything most consumer debtors have.

“B” also stands for:

Christopher McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people Downriver  file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, read The Bankruptcy Book.

Creative Commons License photo credit: takomabibelot