Advertisers on the TV and in the newspaper make it seem as though it is a simple thing to do to disrupt your life by filing for bankruptcy. Is it a good thing, or is it a bad thing? Let us explore a little more.
Bankruptcy can be a hardship or a heartfelt reprieve for some by relieving them of a situation that they have no means to rid themselves.
A consolidation loan could be an alternative to filing for bankruptcy; unfortunately, not all would qualify.
What is bankruptcy?
Bankruptcy is a legal process used by those who can not pay back what they owe to their creditors. They make their claim for protection against their creditors to a bankruptcy court. The court rules how or how much they need to pay back in a mannerly way.
Types of bankruptcies
Chapter 7: This is for getting rid of or liquidating all your credit cards and unsecured loans.
Chapter 9: A Municipality can use this one to reorganize its debt. Detroit is one city that did put this type of bankruptcy to use.
Chapter 11: This is used mainly by a corporation or a partnership to keep their business afloat or ongoing by reorganizing their business affairs, debts, and assets.
Chapter 13: This allows you to repay all or part of your debt by paying a monthly some for three to five years.
Is bankruptcy the right choice?
When you file for bankruptcy, this will affect your credit score and stay on your report for up to ten years.
If an individual or a business had a great score, it could negatively affect them by having their score significantly reduced.
If an individual or business had a bad score to begin, then the impact is not dramatic.
Filing for bankruptcy may be the right step for you regarding starting your pay history anew, without the burden of all the old late payments and delinquencies that would still be showing on your current credit report.
A person or business may not be allowed to get credit to purchase a home or car, or a personal loan for some time after they have filed bankruptcy, and when they can do so, they would have to pay a higher interest rate.
Some items that can not be discharged by filing them in a bankruptcy
- Student loans
- Child support
Things you could and should not do when filing for bankruptcy:
- Do not lie about what you own (your assets)
- Consult an attorney (most important)
- Do not put more purchases on your credit cards.
- You can not transfer your property to family or friends.
- Research, research, what is best for you and your situation
The implementation of bankruptcy
The Founding Fathers initiated the concern for bankruptcy laws when they wrote the Constitution of the United States. (Article1, section8) This provision allowed Congress the right to establish conformed laws on bankruptcy all over the United States. The Constitution was agreed upon by nine states (ratified). It was ten years later that Congress even discussed the issues of bankruptcy.
Individual states set up their bankruptcy courts.
While they waited for Congress to agree on the united laws for bankruptcy, the individual states set up their courts. These were mainly in favor of the creditor. The courts threw the debtors in prison. ( Debtor’s prisons were done away, abolished in 1849.)
Types of bankruptcies
There were many bankruptcy laws written and abolished from the Act of 1800, Act of 1841, Act of 1867( this was the first time laws allowed individual to also file for themselves, not just the merchants), The Act of 1898 became the comprehensive law and for the most part, became permanent. There were several amendments and replacements, but this law was never abolished or repealed.
A significant change happened in 1978
The bankruptcy Reform Act of 1978 brought forth what we know as the “Bankruptcy Code.” This code allowed more power to the bankruptcy judges and is still in use today.
A little tidbit of information
As I have heard and read for many years, President Franklin Roosevelt wrote executive orders in March 1933 proactively putting the United States in bankruptcy, The Trading With The Enemy Act, as amended by the Emergency Banking Relief Act. This relief act for the banks was considered unconstitutional. So FDR picked his chosen few and put them in the courts, where he needed them and resubmitted the cases back through the courts, and they reversed the unconstitutional rulings. Thus the Congress passed The House Joint Resolution 192 (HJR-192), 48 Stat.112, on June 5, 1933. This Act declared that the Federal Reserve Bank notes were “legal tender” and the citizens were only allowed to use these notes to pay their debts, and that they could not use gold, that it was against public policy. The new currency is being printed and sent out by the Bureau of Engraving and Printing to every part of the nation, per Roosevelts fireside chat speech (on March 12, 1933) broadcast to the country after the 12 federal reserve banks were in place. The banking holiday was declared over, and the banks opened with the new money to help the people. It alluded to the fact that FDR claimed bankruptcy for the US (June 5, 1933, when Congress passed the House Joint Resolution 192), and allowed the Federal Reserve Banks to nationalize gold. From what I have heard, the government confiscated gold that was on deposit in the banks. On April 5, 1933, Roosevelt ordered via executive order, all gold and gold certificates over $100.00, and all gold bullion must be turned over to theFederal Reserve by May 1, 1933, and America was off the gold standard. America was back on the gold standard in 1934.
So, getting back on track, bankruptcy can be useful, bad, and ugly. People need to procure for themselves knowledge and proceed with an assurance of what is right for them. Some times laws are put in place to help us, and when they do, take advantage of them, use them for your benefit and others. There are many reasons people need to use bankruptcy, but I feel that in retrospect, they would rather not be in the position that default is their only recourse.