Bankruptcy: Your Constitutional Right to a Fresh Start

Did you know that the idea of bankruptcy — of every person deserving a “fresh start” — was put into our Constitution by the Founding Fathers? They wanted to make sure that everyone had the same opportunity for a second chance at prosperity. Doesn’t that make you feel good: that the founders of our country wrote in bankruptcy protection from the beginning? And it is protection; protection against people and businesses that take advantage of consumers; protection against unforeseeable circumstances; protection against illness, natural disaster and unplanned events. Of course, a law can’t stop something bad from happening to you, but it can stop the hurt from continuing and give you the relief you need to get out from under the situation.

In a Chapter 7 bankruptcy you wipe out your debts and get a “Fresh Start”. Chapter 7 bankruptcy is a liquidation where the trustee collects all of your assets and sells any assets which are not exempt.  The trustee sells the assets and pays you, the debtor, any amount exempted. The net proceeds of the liquidation are then distributed to your creditors with a commission taken by the trustee overseeing the distribution.

Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged.  In most Chapter 7 cases, the debtor has large credit card debt and other unsecured bills and very few assets. In the vast majority of cases a Chapter 7  bankruptcy is able to completely eliminate all of these debts.

You may keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary “Reaffirmation Agreement”. If you decide that you want to keep your house or your car or your furniture, and you reaffirm the debt, you cannot bankrupt (or wipe-out) that debt again for eight years. You will still owe that debt and you must continue to pay it just as you were obligated to continue to pay it before you filed bankruptcy. In order to reaffirm the debt, you must also bring it current. In other words, if you are three or four months behind, then you must pay the back payments which are due in order to reaffirm it. You can selectively reaffirm your debts – you can state that you wish to keep the house and the furniture, but that you want the car and the jewelry to go back to the respective Creditors.

Reaffirmation agreements can be set aside during the earlier of 60 days after the agreement is filed with the Court, or upon the Court’s issuance of an Order of Discharge.

If you need help deciding if or when to file bankruptcy call Firebaugh & Andrews we can help you decide which option will be best for you or your business.  Call  734-722-2999 for your free consultation.