Bankruptcy

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

  1. Student loans
  2. Child support
  3. Alimony
  4. Taxes

Things you could and should not do when filing for bankruptcy:  

  1. Do not lie about what you own (your assets)
  2. Consult an attorney (most important)
  3. Do not put more purchases on your credit cards.
  4. You can not transfer your property to family or friends.
  5. 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.

About the author

Carmen is a wife of 59 yrs., mother of five children, grandmother of 10 grandchildren and great grandmother to 6 great-grandchildren. She embraced the world of technology and became a member and a committed advocate of Compumatrix International.

Comments

  1. Carmen , what a interesting subject and thank goodness we have never gotten ourselves into a predicament where we had to file for Bankruptcy . One thing we both were taught was to pay your bills first . You owe them now you don’t eat until you pay your bills . Guess that was the way of the older generation that I grew up in.

    1. Us too Lorna, many times we had very little on the table. It was ours and we were thankful. The bills were priority number one. We did not go hungry, I could make biscuits. I made them 3 times a day if needed and added whatever I could to make a meal. Thank God we had produce, from mothers garden and canned goods. We worked hard provided what was needed and didn’t pine for what we didn’t have. Life is good no matter what stage we are in.

  2. Good info on bankruptcy Carmen, When I read that, it made me think of how potentially the cost of bankruptcy fraud would be a high social cost. Canadian bankruptcy system. It would be. I was involved in a bankruptcy case, A business went under, and many of us never got paid what was owed us … The Bank always gets paid first, and the rest of us got hung out to dry … This business made out just fine. He hid most of his wealth and for us. The cost to us was we relied on this business to pay us so we could pay our bills. We were left out to dry. So bankruptcy fraud affected me very personally.

    1. Thank you Avery, I appreciate your comments. I know it is a little difficult for you to type them but is good for us to hear your input. This was a depressing topic to me as I wrote it. This was the topic that came to me as I pondered what to write about. Glad you take part, every ones opinion or experiences help someone.

  3. This is a great post. I’m glad to see this written up regarding the bankruptcy of the United States. Only a few are aware of this as many turn a blind eye to the fact the creation of the Federal Reserve (Creature of Jekyll Island) in 1913 was by means an entrapment of the American people.

  4. Very informative Blog Carmen, Thank you for sharing. Some 20 yrs back, I accompanied a client to Bankruptcy Court, and to my surprise, the Court Session was held as a “group function.” A court officer addresses the court and asks How many in attendance had applied for Bankruptcy in the past 7 years, and more than half the room raised their hands. This was shocking to me, how many times an individual could have their debt wiped clean. Bankruptcy scares me because although one’s debts can be forgiven, depending on what stage of life you’re in starting over may be daunting.

    1. There is so much that needs to be watched for when we follow the laws from our government, but I try to see the good of them, and not get depressed. Bankruptcy can be a good thing but also can be abused. Thank you for your comment. Have you written a blog? would like to read yours.

  5. It never ceases to amaze me that the blog posts cover such a wide variety of topics – again, another very interesting one, and one that we are grateful we didn’t have to partake in. However, it is good there is this choice in place when people are totally overwhelmed….much better than the old choice of debtor’s prison for sure! The five points for things one shouldn’t do in filing for bankruptcy would help take note and keep strongly in mind.

  6. Great information on bankruptcy Carmen. It is indeed a tough way to go, but it is a must way for some people. I would have to believe that most people who have to file for bankruptcy already have problems with their credit, so this really gives them a clean startup slate.

  7. Carmen thanks for this in depth insight into bankruptcy. I didnt realize we had so many types of bankruptcy to protect people. Our school system, in my opinion, falls short on giving appropriate financial education to our youth. Its up to parents to teach our kids what we can about money, budgeting and how to save. Bankruptcy should always be a very last resort.

  8. Bankruptcy is something that I know no one would want to go through. It has dang near taken us out once but thank God we stayed afloat. I feel really sad for those who bankruptcy is their only option. I guess we should just be thankful that it’s a law to protect those who are forced to use it.

  9. This path is very scary, it’s painful for any individual at any given time, when you find yourself you cant feed and pay bills its the invitations of many other health issues, stress, self-degrading, isolation, and many others things that affect our social being, it takes God to stay afloat and overcome it and decisions that are positive going forward.

  10. great post Carmen — do know first hand what its like 25 years ago in the USA to go through business bankruptcy and here i am 25 years later still going — yes it was a struggle but it was well worth the trouble of what I did to file it back then — long story but to me it was a family win — love the details n been blessed ever since —

  11. Thank you for the awareness of bankruptcy. It is an emotional subject for individuals, who feel fear and failure at having to go through the bankruptcy process. Yet there are successful business people who use it as a tool and have no emotional attachment to the bankruptcy process and build a more successful business. It is all the energy behind your thoughts of what bankruptcy is to you.

  12. There are those who use bankrupcy as a tool to move on out of bad situations that may have been forced on them by others who I regard as manipulators. Many are oblivious of the risky situations they put themselves in because they believe others. Many of my problems in the past have been caused by people who I thought I could trust. How wrong I was. There are many internet programmes that have been killed off by regulators just because they did not want people rocking their comfortable boats.Many were legal but could not pay because the process was made impossible. Let us hope that Henry has this issue covered.

  13. Thank you Carmen. You gave the list of “Things we could and should not do when filing for bankruptcy” This is super helpful Not ever wanting to be in the position to have to do that though. I did have a relative once that filed for bankruptcy and it would have been very beneficial for them to have the information that you have shared here. I will file this away, and hope to never use it, but good to know it’s there.

  14. My father-in-law had to file bankruptcy because his partner ran out on him with all the money, they had contracts to build houses and had already built quite a few and then just like that his partner withdrew all the money and vanished they would of been millionaires but greed took over and ruined everything.

    1. That is a bummer Timothy. In a situation like that, he had every right to go the route of bankruptcy and hold his head up for it was no faught of his this happened.

  15. Once again a very nice,informative blog Carmen.For most honest people BankAction .It has a tremendous amount of stigma attached and most people would loath the thought of declaring bankruptcy is not a pleasant option.But there are individuals who plan bankruptcy as Avery pointed out to defraud people by taking refuge under bankruptcy Laws.There are now laws that cosumers must also seek pre-filing bankruptcy counseling.Counseling helps them as to which action to take that is best for the person contemplating to file for bankruptcy.

    1. Not my cup of tea Bharat. Not many would survive without some angst in having to file. It negatively affects some, worse than others. appreciate you.

  16. Interesting topic. about 20 yrs. ago I had to claim bankruptcy. It was not as easy as people may think. Mounds of paperwork, hours of listing creditors,how much was owed them, which ones to exempt from the bankruptcy, sessions with the attorney, etc. Once done, the burden of debt was lifted and I was able to start fresh. Of course the attorney’s fee was no small amount, and the stigma of undergoing the process stayed with me for the next 7 years until it was taken off of the credit bureau’s reports. It can be a life saving process for those who must use it, but one should research all other avenues of financial relief before taking bankruptcy.

    1. You have the right of it Gloria. There is nothing I can see that could make it fun. All I see is heartache lasting sometimes the whole 7 to 10 yrs. Thank you for your comment.

  17. This blog does both sides of explaining what bankruptcy is a may be used for. I still feel that bankruptcy is a wealthy person get out of jail free card. Sure supposedly it can affect their credit but poor folks have been dealing with bad credit their hold lives without the funds where it technically doesn’t matter

  18. I decided to join my father in our family business. But because I was the owner’s son, not much responsibility was given to me.
    When he passed away, for lack of knowledge, things got harder and harder, and one thing led to another, which finally led to bankruptcy and the closing of the store.
    Compumatrix came along, something that caught my eye, and since day one took me to the path of learning to be responsible. I feel it is my own business now.

  19. Thanx for the bankruptcy info Carmen. We always hear about companies filing Chapter 13, like its second nature, no big deal. Get in a bit of trouble and I’ll just File. All my life I made it a point to pay my bills first no matter what, bankruptcy seemed like a death sentence to me, terrible credit for 10 years? Your whole financial life would be effected and in the end cost you even more. We should take responsibility for what we purchase, or use and pay for it. Simple, till life happens!

  20. Your post reminded me of the one bankruptcy I went through in the mid-90s, having gotten way over my head in credit card debt. I chose Chapter 7, and within a year I was able to lease a car again, much to my amazement. I thought it would be a very long time before I would be able to operate in any kind of credit-business manner again. I felt that overall the process was rather painless. Years later, I heard that Ch.7’s were no longer allowed for credit card debt, and I’m not sure whether that option’s been reinstated or not.

  21. Carmen, great post. Strange how it seems like everything is part of or comes from the Constitution. Also strange how at my ripe old age of 66 that bankruptcy would interest me at all. But, I never thought I would be at this age without a retirement fund to live on. What seems strange is how things you see other people deal with that you never think will happen to you, end up happening to you. Well, here I am. I had a decent retirement fund that I was building. I didn’t start until my late 30s, but little by little I was getting there. Fifteen years later at the age of 53, I had $250,000 in my 401k. Then “it will never happen to me” happened to me. I was diagnosed with tonsil cancer, had a tonsilectomy, 35 weeks of radiation treatments along with a few sessions of chemotherapy. Just take be out behind the woodshed and beat the crap out of me because that would have felt much better than what I went through. That was February of 2008. Although in no condition to go back to work, I went back to work. The very first day I was greeted in my office and told that my job had been “eliminated”, here is your severance package, and have nice life. After 20 years of service to this company, I was a little bit lost. All of that to say this. It doesn’t take as long to spend $250,000 as you might think, given the right situation. We were still raising our family and our kids were teenagers and you know the story. Raising a family at that age was expensive and I couldn’t bring myself to disrupt their lives or mine any more than they had been already. It took me a while to finally get on disability, which for some reason I felt guilty about, although I was definitely disabled. At age 65 the biggest part of your disability payments end (the part that is paid through the policy from your previous employer), and at age 66 the part of disability paid by Social Security ends. So, one week ago on my 66th birthday I switched over to Social Security. Bankruptcy? I never really considered it. Compumatrix is going to save us all !!!

  22. Thank you Carmen for the great blog, your right when you get over your heads in debt you have to do something and since COVID I think we will see a lot more cases of bankruptcy and divorces. Not to mention suicides and murders. Its all up across the board. More drugs are being prescribed then ever before. A Dr. said a 50% jump in depression meds, so if you need help ask. It is available. Bankruptcy sucks but if you can’t do anything. You must take care of your family. I cant wait for compumatrix. its gonna be like Noahs Ark for many of us. A big life saver and creator of humanity will open its eyes. I cant wait to be part of it all.

  23. had to come back and look at this again because it is pertinent to many here but also in everyday life and the impact putting our cyber world into the biz world of old and how it all is intertwined and with the speed of the cyber world –it is not difficult to see how with this virus involvement over last 8 months or so that there is and will be an abundance of biz closures and bankruptcies — sad but true of the impact of last year — thanks Carmen –great info —

  24. Yes, Bankruptcy can be a useful tool. Avoid if you can, but there should things go awry. Glad you mentioned the Bankruptcy of the US in 1933 and the creation of the Federal Reserve in 1913. A great read for anyone that wants to know about money is “The Creature From Jeckyl Island” by G. Edward Griffon. A very entertaining, NON fiction book about the stealth and back door dealings of it’s creation, which ended up being the main cause of the Bankruptcy of the united States of America (SIC) and subsequently the creation of the Corporation of the United States of America, the gold confiscation and so much more. One thing you didn’t mention is the Federal Reserve is a PRIVATE corporation, not a government entity.

    Legal tender laws were brought into play and made it law that IF a debt was offered to be paid with Federal Reserve Notes, those notes had to be accepted, or the debt was no longer in force and effect. Those laws are still applicable today. Remember that the next time someone says they don’t accept cash :-). Doesn’t mean private debts can’t be paid with anything else, just debts to the government. Individuals and private corporation can take any form of payment they choose, but if FED notes are offered, they HAVE to. Governments are bound by the law to only be able to accept FED notes. Try and pay your taxes with Bitcoin. You can’t. But we can buy a car with it. 🙂

  25. Yes, Bankruptcy can be a useful tool. Avoid if you can, but there should things go awry. Glad you mentioned the Bankruptcy of the US in 1933 and the creation of the Federal Reserve in 1913. A great read for anyone that wants to know about money is “The Creature From Jeckyl Island” by G. Edward Griffon. A very entertaining, NON fiction book about the stealth and back door dealings of it’s creation, which ended up being the main cause of the Bankruptcy of the united States of America (SIC) and subsequently the creation of the Corporation of the United States of America, the gold confiscation and so much more. One thing you didn’t mention is the Federal Reserve is a PRIVATE corporation, not a government entity.

    Legal tender laws were brought into play and made it law that IF a debt was offered to be paid with Federal Reserve Notes, those notes had to be accepted, or the debt was no longer in force and effect. Those laws are still applicable today. Remember that the next time someone says they don’t accept cash :-). Doesn’t mean private debts can’t be paid with anything else, just debts to the government. Individuals and private corporation can take any form of payment they choose, but if FED notes are offered, they HAVE to. Governments are bound by the law to only be able to accept FED notes. Try and pay your taxes with Bitcoin. You can’t. But we can buy a car with it. 🙂

  26. In my opinion should remain a situation of last resort. You are basically avoiding paying people or caompanies for items or assets you have bought. A contract is a contract.
    The only time it is justified tool is when the situation is forced on you by the deeds of others such as someone who oews you declares themselves bankcrupt leaving you to carry the can.
    Hopefully we can all avoid that situation now.

  27. I’m not saying that bankruptcy should be used willy nilly BUT things happen to people that are out of their control. I have several friends that had to go through Chapter 13 because of divorce. One spouse or the other didn’t want to live up to their marriage financial obligations so the other one had all (or most) of the debt dumped onto them. There was no way they could have ever dug their way out and that much debt would have ruined their lives.

  28. I have been down the chapter 7 road once in my life. I was taught if you make bills you pay them but if you lose your job and only have one source of income and you must decide between having a roof over your head and food on the table to feed your family or pay bills, for me the decision was simple. have a place to live and feed my family. My credit is slowly recovering, I don’t wish it on anyone but sometimes you have no choice and for me I did not have a choice so I made the best one for me and my family.

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