Bankruptcy Basics

Posted by Kevin on October 3, 2017 under Bankruptcy Blog | Be the First to Comment

Over the last couple of years, this blog has dealt with many Chapter 7 and Chapter 13 issues.  Some simple, some complex.  Every once and awhile, however, it is good to go back to the basics.  So, in the next few blogs, that is what we will do.

We will begin with an overview.  Many people are skittish about filing bankruptcy.  Yes, they are in a bad financial situation.  Not enough money coming in, debts are mounting, creditor calls are becoming more than annoying, and maybe there are lawsuits.  In society, we are brought up to be responsible and honor our obligations.  It is part of being an adult.  For many, the thought of bankruptcy is equated with failure.   But I take a different point of view.  Bankruptcy should be looked as a vehicle for a new start, a fresh start.

Many people do not know this, but the right to file bankruptcy is in the Constitution.  Congress is given the right to establish uniform laws concerning bankruptcy.  The first bankruptcy law was adopted by Congress in 1800.  It was clearly pro-creditor.  There were subsequent bankruptcy acts in 1841, 1867, 1898 and 1938.

The next major revision was the Bankruptcy Reform Act of 1978, commonly referred to as the Bankruptcy Code.  The Bankruptcy Code marked a significant change in the point of view of bankruptcy laws.  It was decidedly more pro-debtor compared to prior law.   It allowed a vast majority of debtors to file Chapter 7  where debtors are not required to make cash payments to creditors and keep most, if not all, of their assets.

Creditor groups complained that the Bankruptcy Code was too pro-debtor and lobbied Congress for changes.  This led to minor revisions in the 1980’s and 1990’s.  The lobbying continued.  In 2005, Congress adopted the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA).  Although this was a major overhaul of  many areas of the Bankruptcy Code, from a consumer’s point of view, BAPCPA tries to force more debtors into Chapter 13 where monthly payments must be made by the debtor for periods ranging from 36 months to 60 months.  All in all, BAPCPA has made the bankruptcy process more complex and more costly to a prospective debtor.

If there is anything that you should take from this blog, it is that bankruptcy is a right that you have under the Constitution of the United States.  It gives you an opportunity to deal with your debts and get a fresh start.