The concept of bankruptcy is not a new one. Indeed, reference is made to creditors forgiving the debt of their debtors in the Bible, every seven years, and the Old Testament terms it: “God’s release.”
As late as the early 1800s, there remained the threat of people who could not pay their debts being jailed in so-called “debtors’ prisons.” The United States began a rocky road to a bankruptcy law in the early 1800s, and it was not fully enacted and accepted until nearly 1900.
In 2005, the Bankruptcy Law underwent significant change, in what was called the Bankruptcy Abuse Prevention and Consumer Protection Act. The latter part of the name is somewhat misleading, since, in fact, the law significantly favored creditors’ rights and made filing for bankruptcy more difficult and more costly for debtors.
Despite that, many people have asserted their rights to legal help with debt under the new law. For consumers, the usual approach is Chapter 7 or Chapter 13.
Chapter 7 is essentially an elimination of all unsecured debt (credit cards, etc.). Chapter 13 involves a “restructuring” of debt and a payback plan to the trustee over a period of months, based on either excess income, excess assets and other reasons. Debtors may decide to keep a car or a home, or surrender them, without any penalty if the surrender and sale process involves a shortfall for the creditor.
There are some powerful rights for debtors still in the law, and although it has gotten somewhat more complicated, many people are still eligible for debt relief through a bankruptcy filing.
Be cautious of debt consolidation programs unless you have verified their reputation. Be careful of refinancing your home to pay unsecured debt if you may qualify for bankruptcy, as it may only prove to be a short-term solution to a long-term problem. There is a great deal of information on the Internet about filing for bankruptcy, and your local library or bookstore has information. In most cases, under the new law, you really need the assistance of an attorney to fully understand the process and get the maximum benefit. Some attorneys do not charge for a bankruptcy consult, so call around for help.
We are a debt counseling agency, and we help debtors pursue their rights under the bankruptcy law.