Q: Can you explain what bankruptcy is, why it was created, and how it might be able to help me?
A: Let’s talk about how bankruptcy came into being in the United States. When the Constitutional Convention was held, there was discussion between the delegates forming our country as to setting up rules and regulations concerning bankruptcy. The United States Constitution specifically reserved all rights to make laws regarding bankruptcy to the federal government. The bankruptcy statutes are passed by Congress and signed into law by the President of the United States. This means we have a uniform federal statute that applies in all 50 states.
The significance of having a federal court handle bankruptcies is that there are 51 legal systems in the U.S. Under this system, there are 50 state legal systems and above them all is the federal legal system. So when you file for bankruptcy in a federal court, it eliminates the jurisdiction of the state courts. You get a stay on all state court proceedings and all creditors have to go into the federal system, which is a higher court, to deal with the issue there.
The whole purpose of bankruptcy is to give people a fresh start. In capitalism, you need an escape valve for people with financial difficulties. That’s bankruptcy. It allows people, corporations, or other entities to reorganize themselves financially so they can become productive members of a capitalist society and continue to prosper.
Q: When shouldn’t’t someone file for bankruptcy?
A: They should’t file for bankruptcy if they have adequate financial resources to renegotiate their debts and pay them. The basic standard is negative cash flow or, simply stated, an inability to pay your debts and bills as they become due. If you can’t pay your debts or your bills as they come due, you are bankrupt.
Q: Is it possible for someone to adequately represent themselves in a bankruptcy?
A: It is possible to file a bankruptcy on your own. The problem is that even if you can fill out the paperwork, generally speaking you’ll need an attorney to deal with the court proceedings. It is very difficult and doing it yourself is not recommended.
I’ve seen many instances where people have filed bankruptcies on their own. Later, they’ll come to me and the petition is filed so incorrectly that it takes more effort to straighten them out than it’s worth. What we usually do is have the bankruptcy dismissed, pay a second filing fee and start all over again. It’s just a complicated detailed statute – and if you make any mistakes, your case can be dismissed.
Q: Having done this for so long, what are some of the common myths that you’ve heard regarding filing for bankruptcy?
A: The most common myth is that “you’ll never be able to get credit again.” This is absolutely false. It is generally more beneficial for someone who’s behind on his or her bills and has a low credit score to file bankruptcy, get a clean state and start all over again. Another myth is that they won’t be able to get a good job. Again, not true.
Basically, filing for bankruptcy is the exercise of a federal constitutional right. You have a right to file bankruptcy. In a capitalist society, it is necessary to have this safety valve for individuals and corporations. It helps society renew itself.
Many people feel that something bad will happen to them such as they’ll go to jail or all of their assets will be taken away. Bankruptcy is designed to help people, not to hurt them. Anyone with questions should consult with a qualified bankruptcy attorney. Most bankruptcy attorneys will give them a free consultation and the process is not painful. The attorney does the paperwork. The client just provides the documentation and information for the lawyer.
There’s absolutely no stigma attached to filing for bankruptcy. Millions of people have filed bankruptcy every year. Generally speaking, the people who file for bankruptcy and use a good bankruptcy attorney will have better credit within six months to a year and can buy houses, lease cars, and obtain credit cards. There’s just no stigma attached to it.