What IS Bankruptcy?

When you file a bankruptcy case, what exactly allows you to legally stop paying creditors? What do they get in return?

 

Bankruptcy Is Simply a Legal Option

Filing bankruptcy is one legal option to consider if you are having serious financial problems. It may or may not solve your financial problems. The advantages may not outweigh the detriments in your situation. But it’s worth finding out either way.

Do you have reasons why bankruptcy is not right for you? Common sense says that you should find out whether those reasons are actually valid. Do your reasons and concerns actually apply to your situation? Does the law provide sensible and worthwhile ways around them?

Bankruptcy law can get quite complicated, so there are countless misconceptions and half-truths about it. You owe it to yourself to know the truth, so that you can make an informed decision.

Is It a Moral Tool?

Only AFTER you understand the different ways bankruptcy could actually work in your situation would you be able to make a wise moral choice. A moral choice involves a weighing of all your different responsibilities.

This goes well beyond considering only your obligations to your creditors, which is only as far as many people go.  How about your legitimate responsibilities to your spouse, to your family, and to yourself? This includes your emotional and physical health. How about even your responsibilities to society? You can hardly contribute much when overburdened by debt.

You can’t weigh those different responsibilities in a vacuum. You can’t decide whether to use the legal tool of bankruptcy until you understand how that tool would apply to you.

Bankruptcy Is Etched into the Law of the Land

The U.S. Constitution, from its beginning, explicitly authorized bankruptcy. (See Article 1, Section 8, clause 4 of the Constitution.) The idea of bankruptcy was from the very beginning and ever since then consistent with our national character. It is part of an attitude that encourages innovation and taking personal risks. This national character sees the wisdom in forgiving honest financial failure and providing a fresh start. It leads to the recognition that people who are impossibly burdened by debt will not be as economically productive. More broadly, they will be less humanly productive, hopeful, motivated, uplifting members of society. Appropriately used, bankruptcy is good for the economy. It’s good for America.

Bankruptcy Appropriately Used

How is bankruptcy appropriately used? In the ways laid out by Congress in the Bankruptcy Code. Among other things the Code describes the three major consumer and small business options—Chapters 7, 11, and 13. It lays out the choices within those Chapters in dealing with your creditors.

What the Creditors Get in Return

With the Constitution and the Bankruptcy Code giving you the right to not pay your creditors, what do they get in return?

Bankruptcy law balances your rights and that of your creditors. In the next few blog posts we’ll explain some of the ways the law does this balancing.

Your Personal, Informed Choice

Filing bankruptcy is a deeply personal choice. So it’s important to find out how bankruptcy would or would not help you. Then you’ll be prepared to decide whether to use the options the nation’s founders and Congress have provided for you.