Working With a Bankruptcy Attorney

The word bankruptcy comes from the composite Latin words bancus and ruptus, literally meaning a broken (ruptus) bench (bancus). In ancient Roman times, bankers put up benches in the market place from where they would extend loans and carry out financial transactions. If a banker became insolvent, his bench was shattered as a sign that he could no longer secure debts. There was a diversity of ancient approaches to bankruptcy. Both Ancient Israel and Greece had systems of insolvency and debt forgiveness, forgiveness following 5 years in Greece and 7 years in Israel. In the intermediary, creditors might need to sell themselves as slaves to pay the debt. In actuality there were exceptions to the rules in both countries, and being a debt slave was not so pleasant, even if he was more than just an ordinary slaves. In some other countries, the treatment of debtors was much crueler. In the code book of Gengus Khan, a man who sank into debt three times was executed. From Russia come stories of Cossaks who would injure and on occasion kill peasants who were unable to pay their debts. Today, modern civilization offers an substitute to historical bankruptcy. People who have gone into debt have the chance to undergo debt restructuring, bankruptcy education to help debtors rearrange their debts and continue their financial life. In the United States, the power to carry out laws of bankruptcy is taken from Article 1, Section 8, Clause 4, and the Bankruptcy Code, is located at Title 11 of the United States Code. Much of the focus of American debt law is 1) to enable debtors to recover as much as possible and 2) to reeducate the debtor so that he won't go into debt again after he emerges from bankruptcy. The education process in bankruptcy is at least three fold. The first part of the retraining comes from the debtors interaction with the bankruptcy lawyer. A bankrupcty attorney spends his entire legal career in the courts and tries cases before Judges who interpret and in many cases create current thought about bankruptcy. During the first meetings with the client, the bankruptcy lawyer will help the client to describe the financial mess he has gotten into, in an orderly fashion. His morass of debts will be transposed into a detailed story of assets,debts, including liens on property and back taxes, current monthly income, and expenses. The client will be asked to summarize how he came to be in debt. If the debtor wishes to continue with the process, he must take a bankruptcy counseling course taught by licensed professionals. During this course he will be taught techniques of debt management, and he will decide if he is capable of getting himself out of debt with the help of these options, and thus avoid bankruptcy, or if he feels the need to proceed with bankruptcy . If he decides to proceed with bankruptcy, he will have to take a course on bankrupcty management. This course will provide him the information he must have to proceed with the bankruptcy and to remain debt free as soon as he returns from bankruptcy. During the time of the procedure, the bankruptcy lawyer, the courts, the debtor, and the creditor will communicate in and out of court, and in keeping with the bankruptcy laws, the debts will be reorganized and settled as best they can, and a certain percentage will be forgiven. When the debtor comes out of bankruptcy, he will be allowed to continue his business, with whatever credit restrictions the court concludes are appropriate.

Chapter 7 or Chapter 13?

The two most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7, known as "straight bankruptcy," provides for complete liquidation of debt. In return the creditor must surrender all his non-exempt assets via liquidation and ensuing distribution to the creditors. Chapter 13 bankruptcy also called "reorganization,"allows the debtor to reorganize his debt structure over 3-5 years. To be eligible for Chapter 13, the creditor needs to demonstrate to the court that he has sufficient income to repay his debts. If approved he must submit a detailed payment plan.

Chapter 7 bankruptcy is generally most used for debtors who have few property assets, other than their household furniture and home necessities, and who have scant money remaining at the end of the month, or perhaps have trouble meeting basic expenses.

The advantages of Chapter 7 bankruptcy are that it provides for complete discharge of debts and the process moves rapidly. Once the debtor has filed bankruptcy, his creditors cannot collect the debt from him directly.

To qualify to file Chapter 7, a debtor needs to pass the means test, which determines is his entire income is under a certain specified amount.

Chapter 13 bankruptcy is appropriate for debtors who have significant amounts of equity, have a steady monthly income and other assets, but are unable to keep up with their monthly credit payments. Debtors accepted for a Chapter 13 bankruptcy agree to work out a 3-5 year plan (longer in the future), and will cooperate a credit counselor to pay their debts. Monthly payments are sent to the "debt trustee," who apportions the money to creditors according to a pre-determined dispersal plan. Payments in this type of bankruptcy are made from accessory income that remains after basic expenses are taken care of, food clothing, shelter, etc. To be eligible for Chapter 13 bankruptcy a debtor must have unsecured debts below $360,475 and secured debts are less than $1,081,400.

In both Chapter 7 and Chapter 13, the debtor must obtain mandatory credit counseling within 180 prior to filing bankruptcy with the courts. The counseling is designed to give debtors a chance to solve their financial problems themselves and with the help of the course counselors, without the need to go to court. In addition, this course, as well as additional courses that people in bankruptcy must take, aim to teach people in debt how to manage their finances so they won't go into debt again after they come out of bankruptcy.